Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts

Sequestration Takes Effect, but Impact Is Not Immediate





WASHINGTON — University officials, city managers, day care providers and others spent Saturday assessing how they would absorb their part of the across-the-board cuts in federal spending that began taking effect over the weekend.




But even as the institutions that depend on federal money nervously took stock, most Americans were largely unaffected by the cuts, at least for now. At Los Angeles International Airport, John Konopka, 45, suffered no delays as he arrived from Atlanta.


“This is just another travel day,” Mr. Konopka said. “I think all of it’s been talked up a bit, way too politically, to make it seem a lot worse than it is. I don’t think it’s going to be the gloom and doom that some people are saying it would be.”


Others were less sanguine. Joel Silver, 63, a retiree from the Bronx, said he feared the cuts would affect the most vulnerable. He said he was angry that President Obama and lawmakers had not prevented what he called “an invented crisis.”


“What’s the point of a Congress?” he asked. “Aren’t they supposed to sit down and talk about things and figure them out? The economy was just recovering and now it’s going to slide back.”


Across the country, the impact of sequestration, as the cuts are known, appeared to be as varied as the thousands of federal programs, big and small, that now have shrunken pots of money from which to draw.


In Baltimore, the mayor called for an emergency cabinet meeting to discuss the reductions in federal money and their impact on a city that already has a projected deficit of $750 million over the next decade.


At research universities, administrators sent e-mails to faculty members and students warning that changes were coming. Samuel L. Stanley Jr., the president of Stony Brook University, said the institution would lose $7.6 million in “vital federal funding” for research grants and other programs. The University of California, Berkeley, warned that “as sequestration translates into fewer federal grants, the campus will be forced to hire fewer researchers.”


The Air Force Thunderbirds, the elite team of F-16 pilots who perform flight maneuvers at air shows around the country, announced on their Web site that all of their shows had been canceled starting April 1.


Federal officials began sending letters to governors, informing them of smaller grants. Shaun Donovan, the secretary of housing and urban development, wrote to Gov. John R. Kasich of Ohio, “You can expect reductions totaling approximately $35 million.”


In a 70-page report to Congress accompanying the sequestration order and detailing the reductions — agency by agency and program by program — Jeffrey D. Zients, Mr. Obama’s budget director, called them “deeply destructive to national security, domestic investments and core government functions.”


Among the $85 billion in cuts for the fiscal year ending Sept. 30: $3 million less for Pacific coastal salmon recovery; $148 million less for the patent office; a $1 million cut in support by the Defense Department for international sporting competitions; $289 million less for the Centers for Disease Control and Prevention; a $1 million cut in the Interior Department’s helium fund; and $16 million less for the Sept. 11 victim compensation fund.


But even as the reductions became official, the result of a stalemate between Mr. Obama and Congressional Republicans over increasing taxes, some of the immediate impact was difficult to see.


The process of trimming government budgets is slow and cumbersome, involving notifications to unions about temporary furloughs, reductions in overtime pay and cuts in grant financing to state and local programs. Less federal money will, over time, mean fewer government contracts with private companies. Reduced overtime pay for airport security checkpoint officers will make lines longer, eventually.


And so as the first weekend began for the new, slimmer government, little of that was evident yet.


At Kennedy International Airport in New York, travelers who arrived extra early were greeted by short lines, not the drastic delays that federal transportation officials have said could emerge as security officers are furloughed to save money.


“The check-in was fine, at least for now. I’m surprised,” said Chris Achilefu, 45, who arrived at the airport four hours before his flight to Lagos, Nigeria. Normally Mr. Achilefu, an automotive exporter who lives in Upper Darby, Pa., would arrive two hours early, but he said he was concerned about lines.


“I was listening to what the president said yesterday, that it won’t kick in right away,” he said. “Hopefully the two parties will come together, hopefully they will resolve it before another month.”


At the main San Ysidro port of entry between Mexico and San Diego, traffic moved smoothly late Friday night, just hours after the sequestration began, and border lines had only a few dozen vehicles in each lane.


Vendors who line the street where cars sometimes idle for hours waiting to enter the United States perked up when they heard about the cuts.


“That’s good for business,” said Emilio Gomez, an employee at a stand selling rugs, china figurines and soda. “When people are waiting, they get bored and they buy more stuff.”


In his weekly address on Saturday, Mr. Obama acknowledged that not everyone would be affected equally. “While not everyone will feel the pain of these cuts right away, the pain will be real,” he said. “Many middle-class families will have their lives disrupted in a significant way.”


In the Republican response to Mr. Obama’s address, Representative Cathy McMorris Rodgers of Washington also called the cuts “devastating,” but said that Republicans in the House would not yield on taxes. “Spending is the problem, which means cutting spending is the solution,” she said. “It’s that simple.”


Reporting was contributed by Robbie Brown from Atlanta; Will Carless from San Ysidro, Calif.; Ian Lovett from Los Angeles; and Marc Santora and Ravi Somaiya from New York.



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Penney’s and Macy’s Battle Over Martha Stewart Products


Fred R. Conrad/The New York Times


Exclusive products, like the Martha Stewart lines, are competitive products prized by retail chains, particularly in a rebounding housing market.







Two of the biggest names in retail are fighting over Martha Stewart.




In one corner is Ron Johnson, the chief executive of the embattled J. C. Penney. In the other is Terry Lundgren, the chief of Macy’s. Both want the home diva’s housewares, and this week some of their maneuvers were laid bare in a courtroom in Lower Manhattan.


Only days after J. C. Penney stunned Wall Street with news of a big loss, Mr. Johnson described how the hobbled chain was trying to win over Ms. Stewart. He was willing to offer lucrative inducements, worth a potential $500 million in all, to persuade her to sell her branded and designed products in Penney stores.


E-mails in court documents suggest Mr. Johnson was keenly anticipating the reaction of Mr. Lundgren, whose chain has an exclusive contract with Ms. Stewart’s company, Martha Stewart Living Omnimedia, to sell certain housewares.


“Terry might have a headache tonight,” Mr. Johnson wrote to top lieutenants on Dec. 7, 2011, the day the deal between Penney and Ms. Stewart was announced.


“We put Terry in a corner,” he wrote to the Penney investor William Ackman the same day. To Penney’s president, he wrote, “He now has to work again,” of Mr. Lundgren.


Beyond the drama, which is expected to continue with Ms. Stewart’s testimony next week, the trial underscores how competitive the middle-market home goods category is and how much one brand like Martha Stewart can matter.


Home is not the sexiest of categories. It is things like sheets, towels, pots and toasters that are broadly available, low-margin and slow selling. Both Mr. Johnson and Mr. Lundgren said home goods rang up remarkably few sales per square foot. Mr. Johnson said that the category made $185 per square foot in 2007, but now made less than $80. And Mr. Lundgren said that at Macy’s, home was “generally the least profitable part of the store.”


Macy’s, which has been selling Ms. Stewart’s housewares for six years, filed suits last year against both Martha Stewart Living Omnimedia and Penney’s to stop the deal to bring her housewares into that retailer.


The fight over the dud home category might seem counterintuitive. But analysts say it is crucial to a department store’s offerings, and is particularly important now.


“The housing market is rebounding,” said Michael Brown, a partner in the consumer and retail practice at A. T. Kearney, “therefore the home products category is going to be in demand over the next 18- to 24-month period.”


Home departments bring in traffic, particularly from consumers who don’t want to make a separate trip to big-box competitors that are dedicated to home products only, Debra Mednick, home industry analyst for the NPD Group, said in an e-mail. Plus, she said, it brings in a wide range of demographics and ages. Most people need a pan at some point in their lives. Because high-end stores like Saks and Neiman Marcus sell few housewares, it is also a chance for the midrange stores to snag wealthier shoppers, Mr. Lundgren testified Monday.


Home-goods sales have been struggling as they tend to rise or fall in concert with the housing market, and new competition has been introduced from online-only vendors like One Kings Lane.


Exclusive products, like the Martha Stewart lines that Macy’s and Penney’s are fighting over, are particularly important in the home category. “The competitive advantage really lies with private label brands,” Mr. Brown said. “What drives consumers to a physical store is, is there something different?”


Ms. Stewart is the biggest vendor to Macy’s home department, and Mr. Lundgren said that Macy’s had nothing lined up to replace her line.


In a deposition, Mr. Johnson said that there was no other supplier to Penney’s that he expected to have the sales that Ms. Stewart would.


Sales are desperately needed at J. C. Penney, which has been in business for 111 years. Penney’s this week announced a $552 million loss and steep sales declines in the fourth quarter, as well for the year.


And Mr. Johnson, the former retail chief at Apple who took over the chain in 2011, is under increasing pressure to turn the retailer around. Ms. Stewart’s brand is a centerpiece of that strategy.


Penney is renovating an average of 19,000 square feet in each store to feature its new store-within-a-store home emporiums. It has signed up housewares designers like Michael Graves and Jonathan Adler. And Mr. Johnson told investors that when the home departments are unveiled in May, the company should see improved customer traffic.


On the stand on Friday, he said that Ms. Stewart was popular with middle-class shoppers, which fit Penney’s demographic, and that the Martha Stewart stores-within-a-store would serve as a showpiece for other vendors. “What a perfect example to show other vendors what these shops could be,” he said.


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Groupon Dismisses Its Chief, Andrew Mason





Andrew Mason, the irreverent programmer and musician who turned a failed social action site into the daily deals phenomenon Groupon, was dismissed Thursday as chief executive.




A day earlier, Groupon reported weak fourth- quarter earnings, which caused investors to shave off a quarter of the Chicago company’s value. The news about Mr. Mason, released after the market closed, sent shares up more than 4 percent in late trading.


In a note to Groupon employees that was typical of his sassy style, Mr. Mason wrote: “after four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding — I was fired today.”


He added, “If you’re wondering why ... you haven’t been paying attention.”


Groupon said in its earnings call that first-quarter revenue would be about 10 percent lower than analysts were expecting, among other disappointments.


Jordan Rohan, an analyst with Stifel, Nicolaus, said Mr. Mason’s exit “was long overdue.”


“I view Mason as a visionary idea generator,” Mr. Rohan said. “Few would argue with how impressive the Groupon organization was as it grew. However, at some point it became the overgrown toddler of the Internet — operationally clumsy, not quite ready to make adult decisions.”


Mr. Mason, who dodged a potential dismissal in November, will be temporarily replaced by Eric Lefkofsky, Groupon’s executive chairman, and Theodore J. Leonsis, its vice chairman, while they search for a replacement.


Now 32, Mr. Mason had a wild ride. Unlike many Silicon Valley entrepreneurs, he never seemed to dream about building a huge company or even becoming fantastically wealthy. Groupon was an outgrowth of a start-up, the Point, which was aimed at encouraging charitable actions by groups. In late 2008, Mr. Mason and a few colleagues reformulated it as a deals shop.


Over the years, Silicon Valley start-ups had tried many forms of deal sites, but Groupon was the first to really make it work, and did so instantly. The formula was simple and compelling. People were sent e-mails of offers for, say, a local restaurant. If they bought it, they got a bargain, Groupon got a commission and the restaurant won new patrons.


In two years, Mr. Mason was turning down a reported $6 billion offer from Google. As a reminder that fate is fickle, he put in the reception area of Groupon’s offices a gallery of framed magazine covers featuring Napster, Myspace and other tech wunderkinds that ultimately faded. To these losers, he then added a cover that featured Groupon.


“Our marketing guy thought we should put some press on the wall, but I didn’t want an atmosphere of popping the Champagne,” Mr. Mason told Chicago Time Out in 2010. “We still have a mountain to climb, and other iconic companies will be a footnote in history.”


Groupon’s public offering, in late 2011, valued the company at $16.5 billion. It was the most talked-about tech debut between Google and Facebook. The actors, stand-up comics and other creative types who made up much of Groupon’s early team watched in wonder. The company had a loose, informal style, with an editorial team as large as a midsize newspaper. Writers labored over the gags that introduced the deals. The one for a dentist started like this: “The Tooth Fairy is a burglarizing fetishist specializing in black-market ivory trade, and she must be stopped.”


But then the competition intensified, the criticism began and the stock struggled. Groupon’s market value is now $2.97 billion.


Groupon has 10,000 employees in 48 countries. Mr. Rohan, the analyst, said the new chief executive “will have to refocus the company on the most productive markets with the most productive sales people.” He added, “Groupon needs to give up on the grand vision of becoming an operating system for local commerce and instead be the best daily deals provider it can be.”


Even as the daily deals sites struggle financially — the No. 2 company, Amazon-backed LivingSocial, is in worse shape than Groupon — the number of digital coupon users in the United States continues to rise, according to eMarketer. An estimated 92.5 million Americans redeemed a digital coupon in 2012, up 4.9 percent from 88.2 million in 2011.


No surprise there, said Sucharita Mulpuru, an e-commerce analyst with Forrester Research. “Who doesn’t like 50 percent off something? The question was always how you create good consistent deal flow from merchants.”


She noted that in his letter, Mr. Mason talked about what was best for the customer. “They think their customer is Joe Smith who buys the Groupon,” Ms. Mulpuru said. “But the customer is the merchant. They have been focusing on the wrong person.”


Indeed, merchants got a lot of attention for complaining how successful deals came close to ruining them.


Mr. Mason’s letter was in the blunt tech tradition of a former Yahoo chief executive, Carol Bartz, who sent an e-mail to the search engine’s employees in September 2011 saying, “I’ve just been fired.”


In his letter, Mr. Mason wrote: “I’m o.k. with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first-ever play-through.” He added that he was looking for a good fat camp to lose the 40 pounds he had gained at Groupon.


Mr. Mason’s letter was very well received on Twitter, with people applauding his honesty as much as his sense of humor.


Mr. Mason himself retweeted a comment that said: “First the pope and now Andrew Mason!?! Our esteemed leaders are falling like flies.”


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Lockheed Criticized by F-35 Jet Program Chief





The general in charge of building the new F-35 fighter jet sharply criticized the main contractors on Wednesday, saying that Lockheed Martin and the engine maker, Pratt & Whitney, were trying to “squeeze every nickel” out of the program.




The comments, by Lt. Gen. Christopher Bogdan, echoed a pointed critique he made last September, when he suggested that a poor relationship between Lockheed and the government threatened the program.


General Bogdan also seemed frustrated by the grounding last week of all 64 of the high-tech planes after an inspection found a crack in the turbine blade of one of the engines made by Pratt & Whitney.


Loren B. Thompson, a consultant to Lockheed, said Wednesday that the problem might have been caused by a bad casting when that blade was made rather than a design flaw that might affect all the planes.


But Kyra Hawn, a spokeswoman for the F-35 office at the Pentagon, said the military would analyze data from an investigation by Pratt & Whitney before reaching any conclusions. She said the blade was in an engine that had been “driven to extreme tolerances” in ground and flight tests that went beyond its expected military use.


She said that also might have contributed to the cracking, and officials needed to determine whether the jets’ engines would require more frequent inspection than expected.


Pratt & Whitney, a unit of United Technologies, said it was close to completing its investigation of the blade cracking and would make recommendations to the Pentagon soon.


General Bogdan made his comments, first reported by Reuters, in Australia, where he was trying to persuade the Australian government to stick with plans to buy 100 of the jets.


“What I see Lockheed Martin and Pratt & Whitney doing today is behaving as if they are getting ready to sell me the very last F-35 and the very last engine and are trying to squeeze every nickel of that last F-35 and that last engine,” the general told reporters there.


“I want them both to start behaving like they want to be around for 40 years,” he said. “I want them to take on some of the risk of this program. I want them to invest in cost reductions. I want them to do the things that will build a better relationship. I’m not getting all that love yet.”


General Bogdan, who joined the program last summer as the top deputy and took charge in December, said he had seen some improvement from the companies. “Are they getting better at a rate that I want to see them getting better?” he asked. “No, not yet.”


Ms. Hawn, the government spokeswoman, said that with the Pentagon and foreign militaries facing budget cuts, the general was reflecting a wider view that military contractors have been “negotiating every contract as if it were their last.” His comments, she said, were “an attempt to reinforce that we have shared responsibility in driving down program costs.”


The F-35 is the Pentagon’s most expensive program. It could cost $396 billion if the Pentagon sticks to its plan to build 2,456 jets by the late 2030s.


Mr. Thompson, the Lockheed consultant, said an outside audit commissioned by Lockheed had found that the company earned a 7 percent profit since the program began in 2001.


Lockheed and Pratt & Whitney said they have taken a long-range view in reducing costs and sharing cost overruns and expect to achieve more savings.


Ms. Hawn said inspections of the other F-35s used in flight tests had not found any other cracked blades. She said inspections began Wednesday on jets used for training pilots.


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Deal Professor: In Wall St. Tax, a Simple Idea but Unintended Consequences

Some say that a financial transaction tax is a cost-free way to kill many a bird with one stone — raising revenue, preventing financial crashes and making markets safer. But advocates of this neat idea conveniently ignore the century of less-than-successful experience with this tax, including New York State’s own failed attempt.

The idea behind a financial transaction tax, which is a tax on individual market trades, has a smart pedigree. John Maynard Keynes suggested it, and James Tobin, a Nobel laureate in economics, was its most famous modern advocate. Tobin, who died in 2002, wanted to “throw some sand in the wheels” of the markets, and his idea, endorsed by Joseph Stiglitz and Lawrence H. Summers among others, is based on an increasingly held belief that markets are far from efficient. Imposing a transaction tax on each individual trade would eliminate wasteful trading and reduce market volatility, ending short-term speculation and mispricing of assets.

This net benefit is paired with a simple budget argument. The Robin Hood Tax campaign in Britain, for example, has used the slogan “Not complicated. Just brilliant” to support a 0.05 percent tax on transactions as an effective way to ease the budget without harming markets. Let’s face it, the banks are an easy target after the financial crisis.

It seems to be a win for everyone.

Unfortunately, the reality has been much different.

Let’s start with New York State, which has had such a tax since 1905. Over the next eight decades, the tax was revised up and down nine times, including a large increase in the middle of the Great Depression. In 1966, Mayor John V. Lindsay of New York City ended up raising the tax by 25 percent. It led to an immediate reaction as the New York Stock Exchange threatened to jump across the Hudson River to New Jersey.

In the 1970s, the tax began to be phased out. New York State still collects the tax — some $14.5 billion annually — but since 1981, the state has simply returned it to traders instead of keeping it. In other words, the tax is collected and immediately given back, something that can happen only in the strange world of taxes. (Other financial transaction taxes include a federal version, which was put in effect in 1914 to help pay for World War I and eliminated in 1966, and taxes in Massachusetts and Pennsylvania that were also done away with in the 1950s.)

A study of New York State’s tax over those eight decades by Anna Pomeranets and Daniel G. Weaver found that it increased the cost of capital for investors and reduced trading volume. Most important, they found the tax actually increased trading volatility by as much as 10 percent.

Increasing volatility is exactly what advocates of the tax don’t want. They want volatility reduced to prevent market disruptions, but the decline in traders in the markets mean fewer buyers and sellers and more price jumps. This finding of increased volatility is in general accord with nine other major papers to study this issue, including studies of the tax in 23 countries, among them Britain, Sweden and Japan. Only one of these papers found that a financial transaction tax reduced volatility.

The New York State tax experience raises a bigger issue — that of traders just going elsewhere. This problem was mirrored in Sweden.

In 1984, Sweden adopted a financial transaction tax. Some 30 percent to 50 percent of the country’s trading volume then shifted to Britain. The lower amount of trading meant that not only did the tax yield less money than predicted but that the country lost more in capital gains taxes than the financial transaction tax raised. The tax was abolished in 1991.

The Swedish and New York State examples show that not only will traders leave to trade elsewhere; the money that people think this tax will reap will not appear, as that trading migrates and volume declines. Japan decided to eliminate its financial transaction tax in 1999 for this reason.

And even if the trading does not shift to other places, financial people are adept at avoiding it. In Britain, for example, where the financial transaction tax has fluctuated from half a percent to 2 percent, the tax has raised significantly less revenue than one might expect, about £3 billion a year. The reason is that investors who trade regularly in Britain use options to avoid the tax, which applies only to trading in stock. The result may be that the tax pushes investors into more risky securities in their efforts to avoid it.

And the reduced volume does not just reduce the amount of revenue collected. It may impose the largest costs on people who cannot afford or avoid the tax. The money management firm BlackRock has calculated that if the financial transaction tax were set at 0.1 percent per trade, an investor putting $10,000 in its global equity fund would lose more than $2,300 in expected returns over a 10-year period. This amount would rise to $15,000 if the money were invested in a more actively managed European fund.

This means not only less in retirement funds, but fewer jobs. Although disputed, one study in 2004 by the Partnership for the City of New York found that if New York State started keeping a tax of 0.25 cents per share traded, it would lose 23,000 to 33,000 jobs for every 10 percent drop in volume and more than $3 billion in lost revenue and economic value, probably more than offsetting the amount it collected.

This is not to say that a financial transaction tax by itself is such a terrible idea. My point is that we already have lots of experience with this kind of tax, and it argues for caution. If you think a financial transaction tax will reduce volatility, then you have to account for the fact that taxes in the past have shown the opposite. And if the tax is not imposed globally, it will force migrations of trading to less regulated places and in more byzantine forms, possibly making the world markets less safe.

As for seeking revenue gains to solve budget problems, if the tax is too small, it will have no effect. But the larger it is — and the Robin Hood Foundation’s proposal is in the large sphere — the more markets will be affected. It is for these reasons that Canada has rejected such a tax.

Now, we are about to get a real-life case study. France has adopted a 0.2 percent financial transaction tax involving securities of a company with a market capitalization of more than 1 billion euros. The full effects of France’s tax are not yet known, but a preliminary study by Credit Suisse, according to The Economist, found that stocks not subject to a tax rose 19 percent by volume, but those affected by the tax declined 16 percent. And the net effect of the tax appears to have shifted trading to smaller stocks not subject to it, distorting the allocation of capital, which is another problem with the tax. And the European Union has proposed a tax for 11 of its member countries, giving us a possible second test.

Instead of rushing into the adoption of a financial transaction tax, it may behoove us to watch and see whether these new taxes in Europe work. And even if the United States plunges ahead, history tells us that any tax should be carefully structured and considered before being put into effect. For there are likely to be many unintended consequences. There’s a reason that economists say there is no free lunch.


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DealBook: Confirmation Hearing for Mary Jo White Said to Be Scheduled for March

Mary Jo White appears poised to face a confirmation hearing next month, a crucial step for the former federal prosecutor on her path to becoming the top Wall Street regulator.

Ms. White, whose nomination to lead the Securities and Exchange Commission has lingered for over a month, plans to testify in March before the Senate Banking Committee, two Congressional officials briefed on the matter said. The committee has not set a firm date for the confirmation hearing, the officials said, though lawmakers have tentatively scheduled her to appear the week of March 11.

The committee, which oversees the S.E.C. and other financial regulators, must bless her appointment before the full Senate holds a vote. While some officials have quietly expressed concerns about Ms. White’s role as a Wall Street defense lawyer, her nomination is not expected to face major complications.

The timetable laid out on Monday represents a slight delay from earlier plans. An S.E.C. official who spoke anonymously said the agency initially expected Ms. White to face a confirmation hearing in early February. An S.E.C. spokesman did not immediately respond to a request for comment.

The extra time has proved helpful. Over the last couple of weeks, Ms. White has received multiple briefings from agency staff members about new securities rules and the structure of the stock market, the official said. The briefings will in part prepare her for the confirmation hearing, which is expected to cover a broad scope of topics.

While Ms. White is a skilled litigator, she lacks experience in financial rule-writing and regulatory minutiae, a potential stumbling block for her nomination. Lawmakers also expect to raise questions about her movements in and out of the revolving door that bridges government service and private practice. Some Democrats, a person briefed on the matter said, will question whether she is too cozy with Wall Street.

In private practice, Ms. White defended some of Wall Street’s biggest names, including Kenneth D. Lewis, a former chief of Bank of America. As the head of litigation at Debevoise & Plimpton, she also represented JPMorgan Chase and the board of Morgan Stanley. Her husband, John White, is co-chairman of the corporate governance practice at Cravath, Swaine & Moore, where he represents many of the same companies that the S.E.C. regulates.

(Ms. White has agreed to recuse herself from many matters that involve former clients, while her husband agreed to convert his partnership at Cravath from equity to nonequity status.)

Despite some reservations, she is expected to receive broad support on Capitol Hill. When President Obama nominated her last month, Senator Charles E. Schumer of New York was one of several Democrats to praise her prosecutorial prowess, calling her “tough-as-nails” during stints as a federal prosecutor in Brooklyn and as the first female United States attorney in Manhattan.

While she handled some white-collar and securities cases, her specialty was terrorism and mafia cases. As a top federal prosecutor in New York City for more than a decade, she helped oversee the prosecution of the crime boss John Gotti and directed the case against those responsible for the 1993 World Trade Center bombing. She also supervised the original investigation into Osama bin Laden and Al Qaeda.

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Anemia Drug Recalled After Allergic Reactions; 3 Patients Died





The suppliers of a new drug to treat anemia in patients undergoing kidney dialysis have recalled all lots of the product after reports that it had caused severe allergic reactions, including some that were fatal.




Affymax and Takeda Pharmaceutical, which jointly market the drug, Omontys, or peginesatide, announced the recall late on Saturday, and the notice was also posted by the Food and Drug Administration.


The F.D.A. said in a news release on Sunday that it had received 19 reports of anaphylaxis, a severe allergic reaction, and that three of the patients had died, while others required prompt medical intervention or hospitalization.


Approved last March, Omontys broke the lucrative monopoly Amgen had since 1989 on treating anemia in dialysis clinics. While it is not clear yet what the recall means for the future of Omontys, it could help sales of Amgen’s drug, Epogen.


Affymax and Takeda said that hypersensitivity reactions have been fatal in 0.02 percent of the roughly 25,000 patients treated with Omontys since its approval. That would suggest there have been five deaths, a slight discrepancy from the F.D.A. figures that was not explained. Over all, the companies said, about 2 of every 1,000 patients had a hypersensitivity reaction.


The companies and the F.D.A. said the reactions occurred within 30 minutes of patients receiving their first dose by intravenous administration. No problems have been reported with subsequent doses, which are given once a month. Still, the companies and the F.D.A. advised that Omontys use be discontinued even by patients who have already had more than one dose.


The big question is whether this will cause the drug to be withdrawn from the market. It is possible that doctors can act to avert or lessen allergic reactions on the first dose. It is also possible the problems are confined to certain dialysis centers.


A spokeswoman for Affymax said executives would not comment further until a conference call for securities analysts on Monday morning. Omontys is the only marketed product for Affymax, which is based in Palo Alto, Calif., and licensed commercialization rights to Takeda, Japan’s largest pharmaceutical company.


Reports of severe allergic reactions have been accumulating, and the Omontys label warns of them, as does the Epogen label.


This month, Fresenius Medical Care North America, the nation’s largest dialysis provider, halted a pilot program testing Omontys, in part because of these allergic reactions. The company said in a memorandum that it had treated 18,000 patients with the drug and would now analyze the data.


“To date, we have seen infrequent allergic reactions in our patient population receiving their first dose of Omontys,” said the Feb. 13 memo by Fresenius’s chief medical officer and its associate chief medical officer. They recommended that patients already taking Omontys continue and said dialysis centers could also put new patients on it.


The memo was made public in a regulatory filing by Affymax.


Sales of Omontys for the nine months it was on the market were $34.6 million, compared with $1.5 billion for Epogen. Still, Affymax executives have said Omontys was gaining momentum because of its less-frequent dosing, lower cost and the desire of some dialysis center owners for an alternative to Amgen.


Dr. Daniel W. Coyne, a kidney specialist at Washington University in St. Louis, said that unless the problem was because of contamination, “this could easily lead to withdrawal of drug approval.” He said that “two in 10,000 deaths on first exposure is unacceptable, compared to nothing like this” with Epogen.


Dr. Ajay K. Singh, a kidney specialist at Brigham and Women’s Hospital in Boston, said that the recall should result in “minimal disruption” because centers could use Epogen or another Amgen drug, Aranesp. But he said it might be hard for Affymax and Takeda, which is based in Osaka, to show the safety of their drug without a huge study.


Amgen’s Epogen is a synthetic version of the human protein erythropoietin, or EPO, which stimulates the body to produce oxygen-carrying red blood cells. Omontys is not EPO, but binds to the same receptor in the body.


Sales of Amgen’s Epogen have been declining because of changing financial incentives for dialysis clinics and because of safety concerns, particularly those related to blood clots and heart attacks. EPO has also become known for secretly being used by athletes like Lance Armstrong.


The next competition to Epogen could come from Roche’s Mircera, a form of EPO, in mid-2014. Biosimilars, or near-generic forms of Epogen, could reach the market after Amgen’s last patent expires in 2015.


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Major Banks Aid in Payday Loans Banned by States


Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.


With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.


While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.


“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.


The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.


But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.


The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.


For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.


Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.


Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.


While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.


Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.


For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.


Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.


“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.


A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.


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Fed Officials Debate Bank’s Losses Once Economy Mends





The Federal Reserve’s plans for the eventual wind-down of its economic stimulus campaign could provoke a political reaction that will make it more difficult to control inflation, a current Fed official and a former Fed governor said Friday.







Peter Newcomb/Reuters

James Bullard, president of the St. Louis Fed, sees political fallout from coming losses.







Pat Greenhouse/The Boston Globe

Eric Rosengren, head of the Boston Fed, noted 400,000 jobs would be added this year.






Kevin Lamarque/Reuters

Jerome Powell, a Fed governor, said the bank would resist any pressure from Congress.






When the economy grows stronger, the Fed plans to sell some of its vast holdings of Treasury and mortgage-backed securities. The Fed also plans to pay banks to leave some money on deposit with it to limit the pace of new lending.


And that could prove an awkward combination. The Fed faces the possibility of large losses as it sells off securities, which could force the central bank to suspend annual payments to the Treasury Department for the first time since the 1930s, even as it would be increasing the amounts paid to the banking industry for its cash holdings at the Fed to control inflation.


“That sounds like a recipe for political problems,” said James Bullard, president of the Federal Reserve Bank of St. Louis. He described the predicament as one reason the Fed might consider limiting its plans for additional asset purchases.


But Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said that concerns about potential losses needed to be weighed against the benefits of asset purchases. The Fed holds almost $3 trillion in Treasuries and mortgage bonds, and it is adding about $85 billion a month in an effort to cut unemployment.


Mr. Rosengren, a leading advocate of the purchases, said Boston Fed research showed asset purchases this year could help create about 400,000 new jobs.


“That’s what the Federal Reserve should really be caring about, what’s happening with the dual mandate with and without” the asset purchases, Mr. Rosengren said. “When I think about the costs, I have to weigh that against the benefits,” he said at the US Monetary Policy Forum in New York on Friday.


By law, the Fed sends most of its profits to the Treasury, and in recent years those profits have soared as the Fed has collected interest on its investments. Last year, the central bank contributed $89 billion to the public coffers — essentially refunding a significant portion of the federal government’s annual borrowing costs.


The purpose of the investment portfolio is to hold down borrowing costs for businesses and consumers. As the economy revives, the Fed has said it will begin selling some of those holdings. But it faces potential losses on those sales because interest rates would be rising. Security prices, which move inversely to rates, would be falling, and the government would be issuing new debt at the higher rates, making the low-yield bonds that the Fed holds less valuable.


Estimating the potential losses requires a wide range of assumptions on Fed policy, economic growth and interest rates. A Fed analysis published last month, which assumed that interest rates rose to 3.8 percent later this decade, estimated that the central bank might record losses of $40 billion and suspend contributions to the Treasury for four years beginning in 2017. If rates rose by another percentage point, however, the analysis estimated that losses would triple. An independent analysis published on Friday foresaw losses of around $20 billion and a suspension of payments for only three years.


The Fed can afford to lose money because it can simply print more. It would record a liability, and pay down the debt as profits rebounded.


But there are signs that the Fed’s political opponents would seize on any losses as evidence of economic malpractice. And such that criticism could come at a vulnerable moment: central banks are never popular when they are raising interest rates.


Representative Jim Jordan, an Ohio Republican, cited the potential losses in an open letter this week to the Fed chief, Ben S. Bernanke, requesting more information on what he called “the potentially devastating consequences from any unwind.”


Jerome H. Powell, a Fed governor, insisted Friday that the central bank would not allow its course to be influenced by such political pressure.


“We’re independent for a reason,” he said. “Congress has given us a job to do.”


Some supporters of current Fed policy also argue that an economic revival would inoculate the central bank against criticism, in part because the government’s coffers would be filling even without the Fed’s contributions.


But Frederic S. Mishkin, a Columbia economist and one of the authors of the independent analysis of the Fed’s potential losses, said that was wishful thinking.


“Politicians have very short memories,” said Professor Mishkin, a former Fed governor. “They’re going to focus very much on the fact that the Fed is no longer pulling its weight in terms of producing remittances for the federal government.”


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Homeowners Still Face Foreclosure Despite Billions in Aid


A year after five of the nation’s biggest banks reached a pact with state and federal officials over claims of vast foreclosure abuses, the banks are taking credit for giving more than half a million struggling homeowners roughly $45.8 billion in relief.


But despite the banner numbers released on Thursday in a report by Joseph A. Smith, the independent overseer of the settlement, thousands of homeowners are still not getting the help they need to save their homes from foreclosure, according to interviews with housing advocates and homeowners facing foreclosure.


Just under 71,000 borrowers, or 13 percent of the total borrowers helped so far, received assistance on their primary mortgage, which has been the main source of defaults and foreclosures through the housing crisis. But more than 170,000 homeowners received assistance on their second mortgage, which typically is a home equity line of credit that borrowers can tap for cash.


Even though addressing second mortgages does offer some relief to homeowners, in a troubling number of instances the banks are not providing any help with the first mortgage, the housing advocates said. That leaves the homeowners still in jeopardy of losing their homes, while giving banks credit for restructuring loans or wiping out debt under the settlement.


“The second mortgage forgiveness is basically a loophole, which allows the banks to continue foreclosures unabated,” said Elizabeth M. Lynch, a lawyer at MFY Legal Services in New York.


Based on the monitor’s report, it is impossible to tell how many homeowners who received help on their second mortgage are still facing foreclosure on their first mortgage. Ms. Lynch and other advocates estimate that thousands of homeowners across the country are in that predicament.


Banks say they are working to assist homeowners and to fulfill all their obligations under the settlement. And Shaun Donovan, the secretary of housing and urban development, which helped broker the deal with the five banks, said on Thursday that the settlement had already “exceeded expectations.”


Mr. Smith said, “I believe we have made progress, but I know that there is much more work to be done.”


When Danette Rivera, a 38-year-old single mother, received a letter from Bank of America in July alerting her that it was forgiving her second mortgage of about $115,000, she said she was elated. Ms. Rivera said she thought the assistance would save the home in Queens she shares with her two children.


But that hope, she said, was dashed when she learned a month later that Bank of America was foreclosing on her because of her troubled first mortgage. “This house means everything to my family and I am terrified we are going to be homeless again,” Ms. Rivera said. The bank, citing customer privacy concerns, declined to comment.


At its outset, the settlement was trumpeted as a way to hold banks accountable for foreclosure abuses and help homeowners harmed when the housing bubble burst, sending the housing market to its lowest level since the Great Depression. As of early 2012, roughly four million Americans were in foreclosure since the start of 2007, with abandoned properties marring states including Arizona, California and Florida.


The deal with the five largest servicers — Ally Financial, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo — arose from a sweeping investigation by the 50 state attorneys general after revelations in 2010 that banks were churning through hundreds of foreclosure documents without examining them for accuracy.


Initially, the banks resisted reducing mortgage debt, but the attorneys general insisted that debt reduction was critical to the plan. Under the terms of the settlement, the banks receive a variety of credits based on the kind of relief that they provide. For example, banks that offer short sales to homeowners earn at most 45 cents on the dollar. For extinguishing second mortgages for borrowers who are more than 180 days behind on payments, the banks receive 10 cents on the dollar.


The bulk of the relief, according to the monitor’s report, comes from short sales, which housing advocates say do not actually keep homeowners in their properties. In the sales, banks agree to let homeowners sell their houses for less than the outstanding debt owed. Short sales are among the simplest form of relief, particularly because they are a palatable alternative for the banks, which typically incur lower losses on the sales than on foreclosures. Through short sales, banks forgave about $19.5 billion in debt on an estimated 169,000 properties, according to the report. As the housing market plummeted, millions of Americans were unable to sell their homes because they had lost so much value.


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With PlayStation 4, Sony Aims for Return to Glory





For the Sony Corporation, a tech industry also-ran, the moment of reckoning is here.




The first three generations of PlayStation sold more than 300 million units, pioneered a new style of serious video games and produced hefty profits. PlayStation 4, introduced by Sony Wednesday evening, is a bold bid to recapture those long-ago glory days.


The first new PlayStation in seven years was promoted by Sony as being like a “supercharged PC.” It has a souped-up eight-core processor to juggle more complex tasks simultaneously, enhanced graphics, the ability to play games even as they are being downloaded, and a new controller designed in tandem with a stereo camera that can sense the depth of the environment in front of it.


All of that should make for more compelling play for the hard-core gamers at the heart of the PlayStation market. The blood effects in Killzone: Shadow Fall, shown to a preview audience of 1,200 at the Hammerstein at Manhattan Center Wednesday night, looked chillingly real.


The console itself was never shown during the two-hour presentation. No release date was given, although before the Christmas holidays is a good possibility. No price was mentioned.


With PlayStation 4, serious games are about to become much more social. A player can broadcast his game play in real time, and his friend can peek into his game and hop in to help. Also, players will now be able to upload recordings of themselves playing and send them to their friends.


These and other new features cannot hide the fact that PlayStation 4 is still a console, a way of playing games on compact discs that was cool when cellphones were not smart.


Much of the excitement in video games has shifted to the Web and mobile devices, which are cheap, easy and fast. Nintendo’s new Wii, introduced in November, has been a disappointment. Microsoft’s Xbox, the third major console, is racing to become a home entertainment center as fast as it can.


“Today marks a moment of truth and a bold step forward for PlayStation,” Andrew House, chief executive of Sony Computer Entertainment, told the crowd. He said the new device “represents a significant shift of thinking of PlayStation as merely a box or console to thinking as a leading authority on play.”


But the new PlayStation will have a difficult time, like the character in Killzone who was shooting at the people in the helicopter while hanging from the helicopter. Sales of consoles from all makers peaked in 2008, when about 55 million units were sold, according to the research firm I.D.C. By last year, that was down to 34 million.


For 2014, Lewis Ward, I.D.C.’s research manager for video games, forecast a recovery to about 44.5 million.


“From peak to peak, we’ll be down about 10 million,” he said. “There was attrition to alternative gaming platforms like tablets, but the trough was exacerbated by the 2008-9 recession. It did not permit as many people to buy who under normal economic conditions would have bought a console.”


That was reflected in Sony’s miserable financial results. The company has lost money for the last three years, hampered not only by slower console sales but also by a range of unexciting electronic products, a strong yen and the 2011 tsunami that struck Japan.


Analysts have made dire remarks about the one-time powerhouse’s viability. But Sony seems to have bottomed out, helped by a yen that has now weakened. Sony executives said this month that they expected a profit in 2013.


Sony’s new chief executive, Kazuo Hirai, has a longtime personal connection to the PlayStation franchise and is making it one of the core elements of a more tightly focused company. Mr. Hirai became known for some of his more confident statements about the PlayStation, particularly a 2006 swipe at Microsoft: “The next generation doesn’t start until we say it does.”


These days, the next generation is playing games on the Web. Console makers typically sell their consoles for a loss and generate profit through sales of games. In 2012, American consumers spent $14.8 billion on game content, including computer and video games, down from $16.34 billion in the previous year, according to the NPD Group, a research firm.


Instead of buying traditional games, which typically cost $50 or more, many consumers are being drawn to the cheaper, sometimes free games available for their smartphones and tablets, analysts say.


PlayStation 4 games can be streamed to the PlayStation Vita, Sony’s portable game device, among other features.


“The architecture is like a PC in many ways, but supercharged to bring out its full potential as a gaming platform,” said Mark Cerny, Sony’s lead system architect.


James L. McQuivey, a Forrester analyst, said that for the PlayStation 4 to succeed, Sony needed to think beyond games. The console will have to provide other types of content and services, like video conferencing, third-party apps and a TV service to create a deeper, long-term relationship with the customer.


By comparison, Apple, the world’s leading consumer electronics maker, does not just sell hardware. It also has a universe of digital content including apps, music, movies and e-books to make people come back for more Apple gear every year. Apple generally takes an enviable 30 percent cut of all media it sells. Microsoft, Google and Amazon are making similar moves to create such a product array.


“Then and only then can Sony hope to learn enough about its users to overcome its own bias toward preferring to design products in response to engineering principles rather than customer needs,” Mr. McQuivey said.


This article has been revised to reflect the following correction:

Correction: February 20, 2013

An earlier version of this article misstated the number of consecutive years in which Sony has lost money. It is three years, not four.

This article has been revised to reflect the following correction:

Correction: February 20, 2013

An earlier version of this article misstated the name of a research company that follows the electronics industry. It is the NPD Group, not NDP Group.



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DealBook Column: A Reputation, Once Sullied, Acquires a New Shine

How do you describe Steven L. Rattner?

Up until three years ago, he was typically referred to in these pages as a former journalist turned successful financier — the vice chairman of the investment bank Lazard and then a co-founder of the Quadrangle Group, the private equity firm.

With much fanfare, he then became the White House auto czar assigned to fix General Motors and Chrysler, after years of trying to become part of the Washington firmament like so many on Wall Street who have wanted to make the leap.

He was the ultimate consigliere to power. Then, it all fell apart.

He was accused of using “pay to play” practices while raising money from a New York state pension fund when he was still at Quadrangle. In 2010 he paid more than $16 million to Andrew M. Cuomo, who was then New York’s attorney general, and the Securities and Exchange Commission to settle the civil cases without admitting or denying wrongdoing.

He was “banned from appearing in any capacity before any public pension fund within the State of New York for five years” and for “associating with any investment adviser or broker dealer” for two years, according to the suits. As the case proceeded, he stepped down from his position in the Obama administration.

Among the cocktail party circuit in Manhattan, Mr. Rattner was Topic A. And the schadenfreude was thick. Mr. Rattner, the narrative developed, had become Wall Street’s Icarus, flying too close to the sun. The New Republic headlined one article: “Rattner Hoisted on His Own Petard.” The question was asked: Would he ever eat lunch in this town again? And what about Washington?

Now, two years later, Mr. Rattner is lunching all over town. And, in truth, he may have never stopped.

As Mr. Rattner sat across from me in Midtown Manhattan two weeks ago, his re-emergence as power magnate was well under way. He is the overseer of Mayor Michael R. Bloomberg’s fortune of billions of dollars — you could call Mr. Rattner a money manager but that doesn’t capture the scope of it. He has appeared as a pundit about the economy on television (MSNBC’s “Morning Joe,” ABC’s “This Week” and “Fox News Sunday,” among others) and in newspapers (The Financial Times, Politico and The New York Times). And to take the story full circle, the Obama administration, which had eased Mr. Rattner out of his role, appears to have re-embraced him, even using him to campaign for the president last fall.

“It was the worst thing that ever happened in my professional life,” Mr. Rattner, who had taken off his trademark tortoise-rim glasses, said of the accusations and the settlement. “If you asked me, do I wish I had done some things differently about this whole situation, of course I wish I had done some things differently.” More on that in a moment, but he also has clearly worked unremittingly to move on. “Looking back, it was a bit like the half life of a radioactive isotope. Every few months the intensity of what happened seemed to go down by half,” Mr. Rattner added, as he sipped English Breakfast tea.

If there was a question about his current status — and whether the chattering classes had moved on — the guest list of his 60th birthday party this last summer, overlooking Rockefeller Center, may provide the answer: Mr. Bloomberg, Barry Diller, Jamie Dimon, Harvey Weinstein, Senator Charles E. Schumer, Ralph Lauren, Brian Roberts and Fred Wilpon, among others, were all in attendance.

When Vice President Biden held his holiday party in December, Mr. Rattner was there. And at the home of Hillary Clinton last month for her farewell party from the State Department, where Mr. Rattner’s wife, Maureen White, works, he was there, too. (His wife was the finance co-chairwoman of the Hillary Clinton for President campaign.)

In a city where powerful figures are dropped at the whiff of trouble — and rarely return to positions of significant influence despite efforts at comebacks — Mr. Rattner’s narrative of a meteoric rise to embarrassing scandal and back again is notable.

His re-emergence may also be a telling commentary about the way the nation’s elite flock to people with power — and those with powerful friends.

Some of his friends, many of whom declined to comment on the record, said they were willing to overlook his past transgressions because they felt he had paid for them, through the fines and the negative publicity. Others said that he had always been honest with them. Still, there are other friends who say they have distanced themselves from him but haven’t cut him off entirely for fear of alienating themselves from other people in his circle.

Mr. Diller, the chairman of IAC, counts himself among Mr. Rattner’s friends. “Whatever complications there were, I never thought he was culpable.” He added, “When you get anybody who is up there, then the takedown is going to have a pile-on effect. It is the nature of public life.”

That may be a truism. But at the time of the scandal, Mr. Cuomo used particularly pointed language: “Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funneling campaign contributions.”

In the S.E.C.’s case, David Rosenfeld of the New York regional office said then that Mr. Rattner “delivered special favors and conducted sham transactions that corrupted the Retirement Fund’s investment process.”

Before we go any further, some disclosures are in order: It is well documented that Mr. Rattner is a longtime friend and confidant of the publisher of this newspaper, Arthur Sulzberger Jr. (Mr. Sulzberger was in attendance at Mr. Rattner’s birthday party, too.) Mr. Rattner was a reporter for The Times in the late 1970s and early 1980s. He also now writes a monthly Op-Ed column in The Times, arguably providing him with a powerful platform that increases his influence. I purposely haven’t discussed anything about Mr. Rattner with Mr. Sulzberger before writing this column. Now that that’s done, let’s continue.

Mr. Rattner’s re-emergence was not assured.

“There were some people inevitably who I thought were my friends who I found out were more fair weather and especially some in the political world,” he said. “I’m sure they said to themselves, let’s just keep a little space here and see what happens to Steve as opposed to let’s embrace Steve and say he’s my friend.”

One friend who never left was Mr. Bloomberg. When news of Mr. Cuomo’s case against him first broke, Mr. Rattner sent him an e-mail to give him a heads-up about the situation. Mr. Bloomberg’s reply? “The only thing wrong with you is your golf game.”

In an interview, Mr. Bloomberg said, “Steve is a good friend. You stick by your friends. And I don’t worry about what people say.” And despite all the chatter about Mr. Rattner, Mr. Bloomberg added, “I never heard anyone say they wouldn’t invite Steven Rattner to a party because of what was happening.”

The White House was less forgiving. While the Obama administration and Mr. Rattner portrayed his exit from Washington in July 2009 as a natural time to leave since his role helping G.M. through a government supported bankruptcy was finished, the president clearly made no effort to keep him, given the investigation hanging over him.

On the merits of the case that Mr. Rattner settled with Mr. Cuomo — which Mr. Rattner once described as “close to extortion” — he still has strong views. He and several other private equity firms, including the Carlyle Group, were accused of using Hank Morris, a political consultant, to help the firms obtain hundreds of millions of dollars to manage for the New York state pension fund.

Mr. Morris pleaded guilty to a felony count of violating the Martin Act for paying kickbacks and went to prison. Mr. Rattner was also accused of influencing a film distribution company that Quadrangle owned to secure a DVD distribution deal for a low-budget movie called “Chooch” that was produced by a pension fund official’s brother.

Mr. Rattner said: “I can’t imagine that any of the many firms that hired Hank Morris wouldn’t do that differently, given what he turned out to be. I appreciate clearly how important it is to avoid even the appearance of impropriety.”

Mr. Rattner and Mr. Cuomo chose to settle the case on what some lawyers described as benign terms given the penalty of a $26 million fine and a lifetime ban from the securities industry that Mr. Cuomo originally sought. Mr. Rattner settled for $10 million and a ban from working with New York State pension funds for five years, none of which has prevented him from continuing his role of managing Mr. Bloomberg’s money.

Unusually, Mr. Cuomo even agreed that Mr. Rattner’s settlement would include none of the usual language about admitting or denying wrongdoing, which allows Mr. Rattner to deny he ever broke the law. Mr. Rattner said he chose to settle the case, rather than fight what he said he expected to be a drawn-out court battle, because he wanted to move on with his life. He also paid $6.2 million to settle the S.E.C. case.

He clearly feels a sense of regret about some his actions, but declined to discuss the accusations in detail, citing the settlements.

A spokesman for Governor Cuomo declined to comment.

Mr. Rattner said he discovered a unique indicator to measure the impact of the scandal, which might just prove his theory that he should be compared with a radioactive isotope.

Right after the settlement, Mr. Rattner, who has long been active in political fund-raising for Democrats, said nobody would take his money. In fact, one politician, whom he declined to name, sent back a $500 donation from 2011. Several months later, he began to receive solicitations from politicians looking for his help in raising funds, he said. But does that say more about the state of Washington politics or Mr. Rattner?

Despite his past, the White House called him last fall and talked about his campaigning for the president in Ohio, where the auto bailout was an important issue. (Mr. Rattner published a book in September 2010 about his experience in trying to fix Detroit called “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry.”)

David Axelrod, who was President Obama’s senior strategist for his re-election campaign, said in an e-mail of Mr. Rattner, “Whatever happened in New York didn’t obviate the great service he rendered.” He added: “Steve did an extraordinary job for the administration and the country in helping to shape the auto plan, which was a clear success.”

So will Mr. Rattner ever have a chance to work in government again? For years, his name was always part of the parlor game of potential nominees for Treasury secretary.

He had a quick answer about returning to Washington: “Probably not.” He said now that he had worked in the capital and lived in the glare of the spotlight, he better appreciates the upside and downside. He said: “I had a great experience, but I also found out how thankless and frustrating it can be.”

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Editorial: Wages, From the Bottom Up





President Obama was right about the need to increase the federal minimum wage, but it was too bad that he pulled his punches in calling on Congress to lift the wage only to $9 an hour by the end of 2015, from $7.25 an hour, where it has been since 2009.




His proposal would boost the annual pay of an employee working full time at the minimum wage from $14,500 now to $18,000, which is still very low. Several economic measures — including purchasing power, average wages and productivity gains — indicate that the minimum wage should be at least $10 an hour today, not $9 an hour three years from now. In 2008, Mr. Obama campaigned on raising the minimum wage to $9.50 an hour.


Politically, the lowball proposal is understandable. Congressional Republicans are bound to oppose any increase. Representative John Boehner, the House speaker, lashed out against the proposal the day after the president’s State of the Union address, a stance that will very likely further alienate important constituencies from the Republican Party, including women, who represent more than half of the estimated 18 million people currently working at or near the minimum wage, and Hispanics, who represent one-fourth.


Combined with tax credits for the working poor, Mr. Obama’s proposal could lift a minimum wage worker who is currently below the poverty line ($18,498 for a family of three in 2012) out of poverty. But the minimum wage is more than an antipoverty program. In fact, most workers at or near the minimum wage live in households with moderate family incomes above poverty levels but below the national median of roughly $60,000. For them, and for the broader economy, an adequate minimum wage can help ensure fair pay and stimulate the economy by putting more money in consumers’ wallets.


Opponents of an increase in the minimum wage argue that it will harm small businesses, but that fear is exaggerated. Research shows that the extra cost is offset by lower labor turnover, small price increases or other adjustments. In addition, many low-wage workers at small businesses are tipped workers whose employers have been shielded for decades from minimum wage increases, and thus have room for an increase.


Over all, the argument that a higher wage will kill jobs has been debunked by a range of studies showing that a higher minimum wage boosts pay without measurably reducing employment, while improving productivity. One study from the Federal Reserve Bank of Chicago found that a $1 increase in the minimum wage results, on average, in $2,800 in new spending by affected households in the following year, in large part because the increase helps workers accumulate down payments to buy cars. Owning a car, in turn, helps workers to keep their jobs.


On Wednesday, Congressional Democrats said they would introduce bills to gradually raise the wage to $10.10 an hour. Both Mr. Obama and Democratic lawmakers have also called for annual inflation adjustments, an important change that would be made better by adjusting the minimum wage to keep it in line with increases in average wages, rather than with consumer prices. A higher minimum wage would be good for workers and for the economy. The challenge is to get it through Congress.


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The Education Revolution: In China, Families Bet It All on a Child in College


Chang W. Lee/The New York Times


Wu Caoying studied English under her father’s watchful eye in 2006. She is now a sophomore in college. More Photos »







HANJING, China — Wu Yiebing has been going down coal shafts practically every workday of his life, wrestling an electric drill for $500 a month in the choking dust of claustrophobic tunnels, with one goal in mind: paying for his daughter’s education.




His wife, Cao Weiping, toils from dawn to sunset in orchards every day during apple season in May and June. She earns $12 a day tying little plastic bags one at a time around 3,000 young apples on trees, to protect them from insects. The rest of the year she works as a substitute store clerk, earning several dollars a day, all going toward their daughter’s education.


Many families in the West sacrifice to put their children through school, saving for college educations that they hope will lead to a better life. Few efforts can compare with the heavy financial burden that millions of lower-income Chinese parents now endure as they push their children to obtain as much education as possible.


Yet a college degree no longer ensures a well-paying job, because the number of graduates in China has quadrupled in the last decade.


Mr. Wu and Mrs. Cao, who grew up in tiny villages in western China and became migrants in search of better-paying work, have scrimped their entire lives. For nearly two decades, they have lived in a cramped and drafty 200-square-foot house with a thatch roof. They have never owned a car. They do not take vacations — they have never seen the ocean. They have skipped traditional New Year trips to their ancestral village for up to five straight years to save on bus fares and gifts, and for Mr. Wu to earn extra holiday pay in the mines. Despite their frugality, they have essentially no retirement savings.


Thanks to these sacrifices, their daughter, Wu Caoying, is now a 19-year-old college sophomore. She is among the growing millions of Chinese college students who have gone much farther than their parents could have dreamed when they were growing up. For all the hard work of Ms. Wu’s father and mother, however, they aren’t certain it will pay off. Their daughter is ambivalent about staying in school, where the tuition, room and board cost more than half her parents’ combined annual income. A slightly above-average student, she thinks of dropping out, finding a job and earning money.


“Every time my daughter calls home, she says, ‘I don’t want to continue this,’ ” Mrs. Cao said. “And I say, ‘You’ve got to keep studying to take care of us when we get old’, and she says, ‘That’s too much pressure, I don’t want to think about all that responsibility.’ ”


Ms. Wu dreams of working at a big company, but knows that many graduates end up jobless. “I think I may start my own small company,” she says, while acknowledging she doesn’t have the money or experience to run one.


For a rural parent in China, each year of higher education costs six to 15 months’ labor, and it is hard for children from poor families to get scholarships or other government financial support. A year at the average private university in the United States similarly equals almost a year’s income for the average wage earner, while an in-state public university costs about six months’ pay, but financial aid is generally easier to obtain than in China. Moreover, an American family that spends half its income helping a child through college has more spending power with the other half of its income than a rural Chinese family earning less than $5,000 a year.


It isn’t just the cost of college that burdens Chinese parents. They face many fees associated with sending their children to elementary, middle and high schools. Many parents also hire tutors, so their children can score high enough on entrance exams to get into college. American families that invest heavily in their children’s educations can fall back on Medicare, Social Security and other social programs in their old age. Chinese citizens who bet all of their savings on their children’s educations have far fewer options if their offspring are unable to find a job on graduation.


The experiences of Wu Caoying, whose family The New York Times has tracked for seven years, are a window into the expanding educational opportunities and the financial obstacles faced by families all over China.


Her parents’ sacrifices to educate their daughter explain how the country has managed to leap far ahead of the United States in producing college graduates over the last decade, with eight million Chinese now getting degrees annually from universities and community colleges.


But high education costs coincide with slower growth of the Chinese economy and surging unemployment among recent college graduates. Whether young people like Ms. Wu find jobs on graduation that allow them to earn a living, much less support their parents, could test China’s ability to maintain rapid economic growth and preserve political and social stability in the years ahead.


Leaving the Village


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DealBook: SAC Clients Said to Seek $1.7 Billion in Refunds

Clients of SAC Capital Advisors have asked to withdraw $1.7 billion from the giant hedge fund as the government’s insider trading investigation intensifies, according to people briefed on the matter.

That amount represents slightly more than a quarter of the $6 billion that the fund manages for clients, and underscores the reputational damage to SAC from a spate of criminal cases tied to former employees of the firm.

Investors had to inform SAC by Thursday — a regularly scheduled quarterly withdrawal deadline at the fund — whether they wanted their money back.

While the outflows are a blow to SAC and its owner, the billionaire investor Steven A. Cohen, they are expected to have little impact on the fund’s business. More than half of SAC’s assets under management, which stood at $15 billion as of mid-January, belong to Mr. Cohen and his employees.

SAC also has stringent rules in place that prohibit clients from withdrawing all their money at once. Under its so-called redemption terms, the fund will pay out about $660 million at the end of next month to investors who have made withdrawal requests and return the balance of the $1.7 billion in quarterly installments through year-end.

“As we have been saying, the redemptions will have no significant impact on our funds,” said Jonathan Gasthalter, a spokesman for SAC, which is based in Stamford, Conn., and has more than 1,000 employees.

Still, the departure of clients is a rare setback for a firm that has one of the best investment track records in the industry, with average annual returns of about 30 percent over the last two decades. Hedge fund customers have long clamored to put their money with Mr. Cohen, whose trading acumen is legend on Wall Street.

But for certain clients, the government’s investigation into insider trading at the fund raised questions about SAC and whether keeping money there was worth the reputational risk. Among the clients that have severed ties with SAC are a Citigroup unit that manages money for wealthy families and Lyxor Asset Management, a division of the French bank Société Générale.

Some SAC investors have grown concerned over the future of the fund as its legal problems have escalated. At least eight current or former SAC employees have been tied to allegations of insider trading while working there, four of whom have pleaded guilty.

In the latest case, filed in late November, the government brought charges against Mathew Martoma, a former SAC portfolio manager, in a case that prosecutors are calling the most lucrative insider trading scheme ever uncovered. Mr. Martoma has pleaded not guilty.

The trades at the center of the case involve Mr. Cohen, who has not been charged. Federal securities regulators have advised SAC that they may file a civil fraud action against the firm related to the Martoma trades.

Some SAC clients have taken a cautious approach, keeping their money with the fund while monitoring the government’s case. The Blackstone Group, SAC’s largest outside investor, took this route, saying it would keep its $550 million investment with the fund while it tracks developments.

SAC risked losing Blackstone as a client, but assuaged the influential firm’s concerns by loosening the terms of its redemption policy. Earlier this week, the hedge fund notified Blackstone and other clients that they could wait another three months to make a withdrawal request, yet still be able to get all their money back in 2013. Under SAC’s original rules, investors would have had to redeem this week to get their last dollar out by the end of the year.

“We will use this period of time to evaluate all additional information which becomes available,” said a Blackstone spokesman.

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A Tiffany at Costco? Not Now, or Ever, Tiffany Lawsuit Says





The discount warehouse chain Costco got something from Tiffany for Valentine’s Day: a lawsuit claiming it had sold diamond engagement rings falsely marketed in stores using the jeweler’s name.




The lawsuit, filed on Thursday in Federal District Court in Manhattan, says a shopper complained to Tiffany late last year “that she was disappointed to observe that Costco was offering for sale what were promoted on in-store signs as Tiffany diamond engagement rings.”


In an investigation, the lawsuit says, Tiffany found that Costco salespeople referred to the rings as Tiffany, but that the rings were not promoted as such online. The suit says, “Tiffany has never sold nor would it ever sell its fine jewelry through an off-price warehouse retailer like Costco.”


As a result, the suit says, there are “hundreds if not thousands of people who mistakenly believe they purchased and own a Tiffany engagement ring from Costco.”


Costco said it had no comment.


The lawsuit says Costco stopped marketing Tiffany rings after the jeweler approached it last year.


Tiffany asked for all profits made from selling the rings, and for damages that take into account the value of the Tiffany brand in bolstering Costco’s business and gilding a move by the retailer to sell discounted luxury goods.


Luxury brands often sue to preserve their stature and prevent imitations. Previously, Costco took a fight with the Swatch Group over the right to sell Omega watches as far as the United States Supreme Court.


On Thursday, watches by Breitling, Cartier and Chanel were on sale for as much as $15,000 on Costco’s Web site. An engagement ring in the “Audrey” collection — Costco’s advertising makes no mention of any connection to Audrey Hepburn, the star of the film “Breakfast at Tiffany’s” — was priced at more than $60,000.


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Media Decoder Blog: Time Warner Considers Spinning Off Some of Its Magazines

9:15 p.m. | Updated

Time Warner is in talks to shed much of Time Inc., the country’s largest magazine publisher and the foundation on which the $49 billion media conglomerate was built, according to people involved in the negotiations.

Time Warner is in early discussions with the Meredith Corporation to put most of Time Inc.’s magazines — including People, InStyle and Real Simple — into a separate, publicly traded company that would also include Meredith titles like Better Homes and Gardens and Ladies’ Home Journal.

The new company would then borrow money to pay a one-time dividend back to Time Warner, essentially turning what appears to be a corporate spinoff into a sale. The figure being discussed is $1.75 billion, according to the people involved in the negotiations, who requested anonymity to discuss private conversations publicly.

The deal under consideration is one of several options Time Warner is exploring to reduce its troubled publishing unit. As part of the agreement, existing shareholders in Time Warner and Meredith would receive stakes in the new venture. That venture would be primarily a women’s magazine company, expanding on Meredith’s stable of lifestyle publications with strong female readership, especially in the Midwestern United States.

Time Warner would continue to control the news-based magazines Time, Fortune and Sports Illustrated, along with Money magazine. Another person involved in the negotiations said Meredith did not want those magazines — including the standard-bearer Time, which is expensive to operate and reported a 23.2 percent decline in newsstand sales in the second half of 2012 — to be part of the deal.

Spokesmen for Time Warner and Meredith declined to comment. The new company would allow both Meredith and Time Warner to insulate their other assets from the troubled magazine business. It would also give Time Warner the benefit of a large payday in the form of a dividend without having to resort to an outright sale, which could have much harsher tax implications.

Like Time Inc., Meredith has a long and lucrative history in the women’s magazine market, and both companies have emphasized consumer marketing, wringing value from their subscriber lists at every turn.

But in other ways, the joining of the two would involve some remarkable adjustments. The Time & Life Building, a “Mad Men”-era skyscraper in the middle of Midtown, has long been a symbol of Manhattan publishing. Meredith’s roots date to 1902 and the creation of Successful Farming magazine. It owns some of the country’s largest-circulation women’s magazines, but maintains popular, folksy titles like Country Life and the carpentry magazine Wood.

It is unclear whether the new company would move some former Time Inc. employees to Des Moines, where Meredith is based.

The talks come days after Time Inc. said it would lay off 6 percent of its 8,000 employees. Its overall revenue has declined roughly 30 percent in the last five years.

In recent years, Time Warner has tried to trim assets unrelated to the television and movie production business. It has divested itself of AOL, Time Warner Cable, the Warner Music Group and the Time Warner Book Group.

Jeffrey L. Bewkes, chief executive of Time Warner, has previously denied reports that he would sell or spin off Time Inc. He frequently talks about the division’s strongest brands as, essentially, cable channels, and he has mandated that Time Inc. make its magazines available on digital devices.

“They’re printing pages right now, but they’re also on electronic screens with moving pictures,” Mr. Bewkes said in an earlier interview. “A cable channel like TNT or TBS,” he added, is “pretty much the same as what People or Time or InStyle should do.”

Keeping Time, Fortune and Sports Illustrated would allow Time Warner to maintain its name and historical roots, at least until a buyer with interest in the remaining titles emerged.

“Time’s name is on the door,” said a person briefed on Mr. Bewkes’s thinking who requested anonymity to discuss private conversations. “I think Jeff feels it would be better to hang on to it and not sell it for what would be a low price.”

Jeff Zucker, the newly named president of CNN Worldwide, is said to have expressed interest in further collaborations with the newsmagazines.

Time Inc. and Meredith have a recent connection. Jack Griffin, a former Meredith executive, had a brief and stormy reign as chief of Time Inc. before Laura Lang took over in January 2012 — a tenure of less than six months that highlighted the culture clash between the companies.

Time Inc. editors “look down on Meredith as being a sleepy, Iowa-based publisher without the cutting-edge skills and abilities that they feel that they have,” said Peter Kreisky, who was a senior adviser to Mr. Griffin during his brief period at Time Inc.

Ms. Lang, previously chief executive of the digital advertising company Digitas, is an upbeat marketing executive with digital skills but no journalism experience who promptly hired Bain & Company, a Boston consultancy. In a July interview with The New York Times, Ms. Lang said: “Everyone was asking, ‘Who’s getting laid off?’ But it couldn’t be further from the truth.”

She moved aggressively to make Time Inc.’s magazines available digitally and to take advantage of consumer data. In June, the company announced that all of its magazines would be available on Apple’s newsstand.

But those moves weren’t enough to stop the industrywide tide of declining subscription and advertising revenue, prompting Time Warner executives to accelerate their exploration of ways to sell or spin off the magazines. Time Warner initiated the conversation with Meredith, said a person involved in the deal.

“In a declining business, selling today is always better than selling tomorrow,” said another person with knowledge of the deal who was not authorized to discuss the talks publicly.

Last week, Time Warner said revenue at Time Inc. had fallen 7 percent, to $967 million, while advertising revenue fell 4 percent, or $24 million. Subscriptions were flat. (Revenue at the company’s cable television channels rose 5 percent, to $3.67 billion.)

Even People, which has long helped bolster Time Inc.’s bottom line, has suffered. People’s newsstand sales declined 12.2 percent in the second half of 2012 compared with the year before, according to the Alliance for Audited Media. Its advertising pages dropped 6 percent in 2012, according to the Publishers Information Bureau.

Last month, Ms. Lang said she would cut around 480 people at an estimated cost of $60 million in restructuring fees. Magazines like Time and People asked employees to take buyouts and said they would begin layoffs if they did not meet the necessary numbers by Wednesday.

In a conference call with analysts last week, John K. Martin, chief financial and administration officer at Time Warner, said that “very challenging industry conditions weighed” on Time Inc.’s results.

Time Warner isn’t alone in feeling the pinch of a troubled publishing division. In June, News Corporation said it would split its publishing assets, including newspapers like The Wall Street Journal and The New York Post, into a publicly traded company separate from its entertainment division, which includes the highly profitable cable channels FX and Fox News. The separation is expected to be complete this summer.

In October, Barry Diller’s IAC/InterActiveCorp said it would stop publishing Newsweek and merge it with its irreverent digital news site, The Daily Beast.

Christine Haughney, Andrew Ross Sorkin and David Carr contributed reporting.

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