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La razón por la cual Brasil no tiene verguenza de explotar su petróleo

por Mary Anastasia O’Grady

Mary Anastasia O’Grady es editora de la columna de las Américas del Wall Street Journal.

El presidente ejecutivo de Petrobras, José Sergio Gabrielli, rebozaba optimismo cuando visitó la semana pasada por las oficinas de The Wall Street Journal en Nueva York para hablar sobre la petrolera brasileña.

Una razón por la que Gabrielli es optimista es el descubrimiento del yacimiento Tupi en alta mar, el cual se estima contiene entre 5.000 millones y 8.000 millones de barriles de oro negro. Otra razón, igualmente importante, es que según Gabrielli, ningún ambientalista o político brasileño ha cuestionado la explotación de petróleo en aguas brasileñas. Eso contrasta con posturas en Estados Unidos, donde la explotación y desarrollo de plataformas en alta mar han sido prácticamente detenidas con excepción del Golfo de México.

Una explicación para las diferencias entre las posturas de Brasil y EE.UU., según un funcionario de la compañía, es que los brasileños entienden la importancia de la energía para su futuro, mientras que los estadounidenses no.

Yo tengo otra teoría y la mía encaja con el patrón de desarrollo de recursos, o la falta de este, en todo el hemisferio occidental. Se resume así: cuando el gobierno tiene los derechos de propiedad, las restricciones en el desarrollo tienden a ser pocas. Pero cuando el sector privado es el propietario, las preocupaciones ambientales florecen.

La prueba número uno es Petrobras. Gabrielli no sólo dijo que no hay un deseo por detener los proyectos en alta mar en su país. Fue más lejos: “Brasil tiene una de las regulaciones más libres y más orientadas a favor de los inversionistas en el mundo. Aún más libre que en EE.UU.”, dijo refiriéndose al clima de exploración petrolera.

Puede que sea así, pero sería interesante saber por qué, dado el prominente apoyo de Brasil al socialismo. Podría ser que el país está cambiando. Después de todo, ahora hay competencia del sector privado en la industria petrolera. Aunque también vale la pena destacar que el gobierno brasileño tiene una participación controladora de 58% en las acciones con derecho a voto de Petrobras y 32% del total de acciones. Esto significa que las ganancias de Petrobras van directamente al gobierno, dándole a los políticos más dinero para sobornar a sus votantes.

En EE.UU., el Congreso no tiene ni remotamente esos intereses en una industria petrolera exitosa. ¿Qué tan buenas son las ganancias corporativas si van directamente a los accionistas, pensionados y empleados? Al Congreso incluso se le ha negado un impuesto por ganancias extraordinarias. Los políticos estadounidenses tienen mucho más incentivos para atender el poder concentrado de los grupos de intereses especiales conocidos como “verdes”.

En 1995, el gobierno británico vendió su participación restante en British Petroleum, que había sido privatizada desde la década de los 80. En octubre de 1996, un miembro británico del Parlamento Europeo, el socialista Richard Howitt, empezó a acosar a BP por supuestas violaciones ambientales y a los derechos humanos en Colombia. ¿De pronto la compañía pasó de ser un ciudadano modelo a una corporación asesina? O, ¿los socialistas británicos de repente perdieron el incentivo de apoyar a la compañía y descubrieron nuevas razones para atacarla, ya que los integrantes de la izquierda son aliados ideológicos de los rebeldes colombianos que estaban poniendo bombas en los oleoductos de BP?

Al menos, Petrobras es una compañía bien dirigida, que cotiza en bolsa y que debe responder a sus accionistas. Pemex, la petrolera estatal mexicana, es un notable contaminador y aparentemente está exenta de la presión política para limpiar lo que hace.

La minería provee un ejemplo todavía mejor de esta contradicción. Bolivia, Venezuela y Cuba impulsan agresivamente las operaciones mineras estatales. Ningún movimiento ambientalista no gubernamental, ni la clase política han expresado la más mínima objeción.

En los lugares donde el sector privado está promoviendo la exploración minera, la historia es completamente distinta. En febrero, visité un pueblo rural en El Salvador cerca de la frontera con Honduras, donde Pacific Rim Mining Corp. trata de reabrir la mina de oro El Dorado. La compañía pasó un año construyendo los diseños de la mina, en un proceso que incluyó más de 20 juntas públicas con las comunidades locales. La firma dice que el último diseño excede los estándares internacionales. El gobierno del presidente Tony Saca reconoce esto diciendo a la compañía que no hay problemas técnicos con la mina, sino políticos.

Esos problemas políticos vienen del partido político de izquierda FMLN, y de las organizaciones no gubernamentales que comparten la ideología anti-sector privado del FMLN. Los críticos han cuestionado los temas ambientales de la mina, aunque no han sustentado nada. Pese a esto, el gobierno de Saca ha respondido retrasando los permisos de Pacific Rim durante cuatro años, enviando la señal a los inversionistas de que El Salvador no es un país abierto al sector empresarial.

El alcalde local me dijo que la comunidad quiere el proyecto, el cual creará 600 nuevos empleos directos y podría producir hasta 3.000 empleos indirectos. El único problema es que como el gobierno no es el propietario, El Dorado no inspira a los políticos en San Salvador de la manera en que Petrobras inspira a Brasilia.

Correa satisfecho con salida anticipada de base de EEUU

El presidente Rafael Correa reiteró el jueves que su gobierno no quiere soldados extranjeros en el país y consideró como una “buena noticia” que militares estadounidenses salgan antes de la fecha prevista de una base ecuatoriana desde donde realizan operaciones antidrogas.

El cónsul de Estados Unidos en Guayaquil, Douglas Griffith, había informado la víspera que la salida del personal estadounidense se cumplirá “antes de noviembre (de) 2009”.

“Eso es una buena noticia, de acuerdo al tratado, nosotros teníamos que anticipar a Estados Unidos que ya no íbamos a renovar el acuerdo y éste finalizaba en noviembre del 2009, pero tenían un año más para irse, es decir, ellos podían quedarse hasta noviembre del 2010”, dijo Correa durante una entrevista en radio La Luna.

El gobierno de Correa había anunciado que no renovará un convenio con Washington por el cual efectivos estadounidenses podían operar desde la base ecuatoriana de Manta, ubicada 260 kilómetros al suroeste de Quito, para realizar tareas de combate al narcotráfico.

Respecto a la posición estadounidense de que su salida del país “va a dejar un hueco” en lo que se refiere a la lucha antidrogas, Correa respondió que “si quieren control del narcotráfico que pongan la base en los países que producen drogas, pero Ecuador no es productor de drogas”.

“En todo caso, nuestro concepto de soberanía, entre otros, es no tener soldados extranjeros en el suelo patrio”, agregó.

Chávez acusa dueños de Cemex de saquear a Venezuela

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Planta de CEMEX en Maracaibo.
AP
Planta de CEMEX en Maracaibo.

El presidente Hugo Chávez calificó el jueves como “irrespetuosos” e ‘‘irresponsables” a los directivos de la cementera mexicana Cemex, que su gobierno expropió a inicios de semana.

“No les importa contaminar gente, playa y vegetación y animales y todo. Lo de ellos es ganancia, dinero. Pero no para invertirlo aquí; para llevárselo, saqueando las riquezas del país y vendiendo el cemento más caro del mundo”, dijo el gobernante a la televisora estatal durante una reunión de ministros en el palacio presidencial, al fustigar a la compañía mexicana.

Manifestó que “los irresponsables de Cemex, irresponsables, nunca invirtieron en tecnología. ¿Para qué?, para eliminar ese polvillo (la contaminación)”.

Mientras se definen los términos de expropiación de la empresa, el ente regulador del mercado de capitales prorrogó hasta la semana próxima la suspensión de la venta de las acciones de la filial de Cemex.

La toma de la cementera que realizó el gobierno a inicios de semana, se dio en medio de fuertes diferencias con Cemex, la accionista mayoritaria de la compañía, que anunció en la víspera que acudirá al arbitraje del Banco Mundial para denunciar las acciones ilegales que se cometieron en la expropiación.

Chávez desestimó las críticas de organizaciones empresariales y opositores por la decisión.

El mandatario informó que su gobierno creará una corporación de cementos con las empresas nacionalizadas y el nuevo estará adscrito a la Vicepresidencia.

La Comisión Nacional de Valores (CNV) informó que amplió la paralización de la venta en la Bolsa de Valores de Caracas de los títulos de Cemex, que es la mayor cementera del país para permitir que los accionistas minoritarios tengan “claro conocimiento y perfecto alcance” de la expropiación. Los títulos no se venden desde el martes.

La CNV reactivó el miércoles las venta de las acciones de la Fábrica Nacional de Cementos de la francesa Lafarge, que fue paralizada por 24 horas después que los representantes de la empresa suscribieron un memorando de entendimiento para vender al gobierno 89% del paquete accionario de la compañía por 267 millones de dólares.

La holandesa Holcim también firmó un documento para transferir al Estado 85% de las acciones de su filial venezolana por 552 millones de dólares.

Con la nacionalización de Lafarge y Holcim y la expropiación de Cemex el gobierno aseguró el control de 90% de la producción de cemento del país, que sumado a la reciente toma de la Siderúrgica del Orinoco (Sidor) le garantiza al Estado el manejo de los principales insumos para la construcción.

Cemex informó el miércoles en un comunicado que la confiscación de sus activos representa una ‘‘violación flagrante” de la constitución de Venezuela y sus leyes de expropiación.

La empresa también dijo que la oferta de pago de 650 millones de dólares, que realizó el gobierno como compensación, es “significativamente” inferior al valor real de sus negocios en Venezuela.

El ministro de Energía, Rafael Ramírez, declaró a inicios de semana que Cemex estaba exigiendo un pago de 1.300 de dólares.

A partir del 20 de agosto entró en vigencia un decreto presidencial que delegó en manos de la corporación estatal Petróleos de Venezuela S.A. (PDVSA) el manejo del proceso de expropiación de Cemex.

En el referido decreto se prevé la “adquisición forzada” de las acciones de Cemex Venezuela y de “sus empresas filiales y afiliadas, así como los derechos, bienes muebles e inmuebles, maquinarias, equipos industriales y de oficina y cualquier otro activo requerido para la actividad de producción, explotación, procesamiento, transporte y almacenamiento” de cemento.

Chávez informó que su gobierno está “a punto de llegar al acuerdo final” con el grupo internacional Ternium para pagarles el paquete mayoritario de acciones que tenían en la Siderúrgica del Orinoco (Sidor), empresa que fue nacionalizada hace tres meses.

Uribe rinde testimonio ante comisión legislativa

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El presidente de Colombia, Alvaro Uribe
Christian Escobar Mora / AP
El presidente de Colombia, Alvaro Uribe

El presidente Alvaro Uribe rindió testimonio el jueves ante una comisión legislativa que lo investiga en el caso de supuestos favores políticos ofrecidos por funcionarios del gobierno en 2004 para aprobar la reforma constitucional que permitió la reelección.

Uribe llegó temprano acompañado de su abogado Jaime Lombana y no formuló declaraciones a la prensa ni a la entrada ni a la salida del edificio administrativo del congreso, en el centro capitalino, donde está la sede de la llamada Comisión de Acusaciones de la Cámara de Representantes, la única instancia que puede investigar a un jefe de estado colombiano.

La Comisión deberá ahora oír otros testimonios, incluyendo ministros, antes de decidir si pasa o no el caso al plenario de la Cámara de Representantes para eventualmente someter al mandatario a un juicio político.

Tras la audiencia, realizada a puerta cerrada, el representa Edgar Ulises Torres, miembro de la Comisión, dijo a los reporteros que al inicio del testimonio el presidente pidió que esa instancia legislativa oyera las versiones de varios de sus ministros y que también averiguara el papel cumplido por el periodista Daniel Coronell, director de Noticias Uno, un noticiero que en abril divulgó una entrevista con una ex congresista que mencionó el caso de las ofertas de supuestos favores.

Coronell, en entrevista telefónica, dijo que con su petición “el presidente busca desviar la atención” del caso y que él no había cometido ningún delito.

Desde su creación en 1886 la Comisión de Acusación legislativa nunca ha formulado cargos contra ningún funcionario, de acuerdo con el organismo no gubernamental Colectivo de Abogados. En caso de aceptar el caso de Uribe, entonces la Comisión debe votar y aprobar por mayoría de sus 19 miembros pasar el caso a la Cámara de Representantes para el enjuiciamiento político.

La mayoría de los miembros de la Comisión de Acusaciones pertenece a partidos aliados al gobierno, tanto como la Cámara de Representantes de 164 legisladores.

La investigación fue abierta en mayo pasado a pedido de congresistas opositores, como del partido Polo Democrático, que consideran que el mandatario incurrió en el delito de “cohecho”, ofrecer o recibir prebendas como funcionario público a cambio de algo, en el caso de revelaciones hechas por la ex congresista Yidis Medina en torno a cómo se votó en 2004 el proyecto de reforma constitucional que permitió la reelección.

Medina denunció en abril que recibió en aquel año ofertas de cargos burocráticos regionales por parte de funcionarios del gobierno a cambio de votar a favor de la reforma. La ex congresista, condenada por la Corte Suprema en junio pasado a 47 meses de prisión por cohecho, dijo que sólo denunció el caso hasta ahora porque el gobierno incumplió con las supuestas promesas.

Según Medina los ofrecimientos le fueron hechos en la casa de gobierno por al menos dos ex ministros, que lo niegan.

Los funcionarios, incluyendo Uribe, han admitido haberse reunido con varios congresistas como Medina en los días de los debates legislativos, pero niegan haber hecho ofrecimientos de cargos. La reforma fue aprobada finalmente en 2005 y en mayo del año siguiente Uribe fue reelegido por un nuevo cuatrienio.

The worst tax

Richard Rahn

Rank the following taxes from best to worst: individual income taxes; payroll taxes, corporate income taxes, sales or consumption taxes, and residential property taxes. The vast majority of economists would rank the corporate income tax as being worst and the sales tax and residential property tax as the best.

Unfortunately, the corporate income tax is often the favorite tax of fiscally irresponsible politicians because it is not easily seen. In fact, the corporate tax is paid by workers in lower wages and fewer new jobs, by consumers in higher prices and by savers and investors in lower rates of return. The Organization for Economic Cooperation and Development (OECD), based in Paris and not known for favoring lower taxes, published a new study last month, “Tax and Economic Growth,” which provides more evidence that the corporate income tax interferes most (as compared with other taxes) with proper resource allocation, productivity growth, and economic efficiency.

Last week, the U.S. Government Accountability Office (GAO) released a study that showed 28 percent of large companies paid no corporate income tax in 2005 almost always because they had made no profit. Rather than thoughtfully considering whether the corporate income tax should be reduced or abolished, several bluster brains in the U.S. Congress used the report as an excuse to attack corporations. Sen. Byron Dorgan, North Dakota Democrat, who is a big supporter of agricultural subsidies to millionaire farmers and foolish corn ethanol mandates, which are neither cost-effective nor reduce total carbon emissions, demanded that big corporations pay “their fair share” of taxes. Mr. Dorgan, of course, ignored the fact that only people – again, workers, consumers, and/or savers and investors – pay taxes. He also did not explain how it is “fair” that U.S. companies are already more heavily taxed than their foreign competitors, even neighboring Canada.

The United States‘ corporate income tax rate now is more than 50 percent higher than the OECD members (major industrial countries) average.

Before the Reagan administration, the U.S. had a 50 percent corporate tax rate, and most other countries had similar high corporate tax rates. During the Reagan administration, the United States sharply reduced its corporate tax rate and other nations followed the lead.

As the benefits of corporate tax reduction quickly became obvious, most countries kept cutting their corporate rates. The Irish cut their rate to 12.5 percent and went from being the poor man of Europe to the second-richest on a per capita income basis. The formerly communist countries of Eastern and Central Europe are now in the process of besting the Irish, by going to low flat-rate systems on both personal and corporate income. As the accompanying chart shows, the Bulgarians are the most recent to join the flat-rate club with a 10 percent rate on both corporate and personal income.

There are a number of very high-growth countries, such as the United Arab Emirates (UAE), and financial centers, such as Cayman, that have no corporate or individual income tax at all. They rely primarily on sales or consumption taxes, property taxes and fees for government services. And for the most part they have done very well by their citizens.

Assume you are a businessperson who has just developed a greatly improved electric car battery that you expect to sell in most countries around the world. Would you set up your business in the United States, which has the highest corporate tax rates in the world?

What does it say about those U.S. politicians who rant about U.S. companies moving their businesses to other countries and U.S. citizens moving their capital elsewhere, when many of those same politicians oppose tax rate reductions and even advocate tax rate increases?

Corporate leaders have a fiduciary responsibility to their stockholders to maximize profits. If a country has tax and regulatory provisions that make its companies noncompetitive, the company has no choice but to move.

Businesses will continue to flee the United States, and new companies that intend to sell globally will be less likely to establish their companies in the U.S. as long as the U.S. is less globally attractive because of high tax rates and excessive regulatory costs.

The corporate tax should be abolished because it is the most destructive tax. In a typical year, it only produces about 10 percent of federal revenue. This static revenue loss would be quickly made up by the increase in shareholder dividends that should no longer have a tax preference (in the way that sole proprietorships, partnerships, and limited liability companies are now taxed), and through the additional productivity, international competitiveness and job growth that would result from abolition of the corporate income tax.

Sen. John McCain has said he wants to cut the corporate tax rate to 25 percent and not raise individual tax rates. Sen. Barack Obama has not yet proposed a reduction in corporate tax rates, and has proposed increasing the top marginal individual rates so that the United States would have some of the highest individual tax rates in the world.

Given the above information, do you think the United States will gain more jobs and become more internationally competitive under Mr. McCain’s or Mr. Obama’s tax plan?

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Thursday’s Daily News

Andrew Roth

THE DAILY NEWS
We Can’t Tax Our Way Out of the Entitlement Crisis
– Glenn Hubbard, WSJ
Why Corporate Tax Is The Worst Tax
– Richard Rahn, Washington Times
A Senator in the ‘No’
– Edwin Feulner, Heritage Foundation
Fairness Down Your Throat
IBD Editorial
Free Market Medicine
– Paul Howard, National Review
Interview with Jim Rogers About China
– Keith Fitz-Gerald, Seeking Alpha
Fat Chance: Banning Fast Food
– Sara Wexler, American.com
Stevens Sets Up Fund to Pay for Legal Bills
– Manu Raju, The Hill
The Production Value of Brett Favre
Skip Sauer, The Sports Economist
PODCAST: Interview with Carla Howell
The Glenn and Helen Show

Inflation Peak Signaled by Tame Labor Costs:Inflation’s P John M. Berry

Commentary by John M. Berry

Aug. 21 (Bloomberg) — U.S. inflation reached its highest level in more than a quarter-century this summer. The good news is that the worst of the price increases probably is behind us.

The surge in commodities prices, especially for oil and food, drove the year-over-year increase in consumer prices, to 5.6 percent in July. Now, with the prices of oil, corn, copper and many other commodities in retreat, the month-to-month changes in the consumer price index will settle down.

The bad news is that the drop in inflation won’t be sudden, because many businesses are trying to pass on their higher costs to their customers. For instance, utilities in Virginia and New Hampshire recently got permission from regulators to raise electricity rates because of increased fuel expenses.

What’s reassuring is the absence of signs that the surge in inflation has triggered a wage-price spiral. Many companies have managed to boost productivity enough to offset much of the increase in their labor costs.

While that’s hardly cause for celebration among workers who have seen their inflation-adjusted pay fall, some of that loss is being regained as the cost of gasoline comes down.

The average cost of all grades of gasoline declined by 37 cents a gallon, or 8.9 percent, to $3.79 over the five weeks ended on Aug. 18, according to the Energy Information Administration. Over the same period, diesel prices plunged 55 cents a gallon, or almost 12 percent, to $4.22.

Skewed Comparison

When the Labor Department issues its report next month on the CPI for August, it may show an even higher year-over-year increase than July’s. But that may be the result of a 0.2 percent decline in the index in August 2007 that will drop out of the year-over-year calculation.

It’s unlikely that falling motor-fuel prices will be enough to cause the overall August CPI to decline, since they account for only 5 percent of the index.

The break in commodity prices is also good news for Federal Reserve officials, whose prediction that inflation would moderate was based largely on the expectation that such prices wouldn’t rise forever.

Fed officials more closely watch the personal consumption expenditure price index, which is a broader inflation measure than the CPI. At the June 24-25 meeting of the Federal Open Market Committee, most officials said they expected PCE inflation of between 3.8 percent and 4.2 percent this year, falling to 2 percent to 2.3 percent in 2009.

For interest-rate policy purposes, officials place even more emphasis on core PCE inflation, which excludes food and energy. Their projection for the core measure this year was a 2.2 percent to 2.4 percent increase, falling to 2 percent to 2.2 percent next year.

Central Banks

A key issue for the Fed is whether the broader CPI rate would fall toward the core measure, or the core measure would rise toward the CPI. Some central banks, including the European Central Bank and the Bank of England, have formal targets for the change in overall inflation rather than for the core, and some officials at those banks have criticized the Fed’s focus on the core.

“Many participants expected that persistent economic slack and a flattening out of energy and other commodity prices in line with futures market prices would cause overall inflation to decline noticeably in 2009 and 2010,” Fed officials said in explanation of their June economic projections.

At the same time, the summary said, a significant majority of FOMC participants “saw the risks to the inflation outlook as skewed to the upside.”

Now, two months later, those risks haven’t disappeared, though they have diminished.

Commodity Prices

Commodity prices haven’t just stopped rising, they have declined. And so long as the outlook for economic growth is weak in the U.S. and Europe, and slowing in many other regions, a quick rebound in commodity prices seems unlikely.

Similarly, productivity growth was strong in the first half of this year, and while slower economic expansion in the second half probably means productivity gains will be smaller, they won’t disappear.

For all this country’s inflation problems, they aren’t as bad as in much of the world. While inflation rates aren’t higher in Europe, wage demands there may make them harder to contain.

Those challenges are nowhere near as bad as those confronting emerging markets. In those economies, food and energy are a much larger share of household expenses than in industrial nations, and so far central banks have not raised interest rates as much as may be needed to curb inflation.

Mounting Inflation

“In emerging and developing countries, inflationary pressures are mounting faster, fueled by soaring commodity prices, above-trend growth, and accommodative macroeconomic policies,” the International Monetary Fund said in its World Economic Outlook released last month.

Inflation is forecast to reach 9.1 percent in these countries this year, dropping to 7.4 percent in 2009, the IMF said.

While the U.S. inflation outlook has improved, there is still a risk that something goes wrong. And even if it doesn’t, the Fed’s 2 percent target for the overnight lending rate is too low to be maintained indefinitely.

That said, it’s “a good time to be patient, because I do think we will see better news on the inflation front,” in part because of falling oil prices, Gary Stern, president of the Minneapolis Federal Reserve Bank, said yesterday in an interview.

Fed’s Role as Firefighter Hot Topic at Jackson Hole

Thrust into the role of financial firefighter, Federal Reserve Chairman Ben Bernanke has taken unprecedented steps over the past year to battle the nation’s worst credit and financial crises in decades.

Rick McCharles
Jackson Hole, Wyoming, site of the Fed conference.

For many, the verdict is still out on if he opened up the hoses too widely.

While intended to prevent a broader economic meltdown, the Fed’s actions have drawn some criticism on Capitol Hill and elsewhere about whether taxpayers are being put at risk and if expanded safety nets will encourage financial companies to gamble more recklessly in the future.

The Fed’s handling of the credit, financial and housing debacles—which have badly burned the economy—is likely to spur debate at a high-profile conference this week in Jackson Hole, Wyo.

This year’s forum will examine past and present financial crises, and the challenges confronting Bernanke and other central bankers as they try to help stabilize financial markets worldwide.

Sponsored by the Federal Reserve Bank of Kansas City, the three-day conference opens Thursday with a reception for Fed policymakers, economists, academics and international central bank officials.

The main attraction—a speech by Bernanke on financial stability—comes Friday morning, followed by a raft of academic papers and discussions.

At last year’s conference, Bernanke was taking heat about whether to start lowering interest rates. He signaled the Fed stood ready to do so. It cut rates seven times from September through April.

The economy is the top concern for voters and of keen interest to presidential contenders Sens. Barack Obama and John McCain, who are gearing up for their party’s conventions.

Jackson's Hole 2008

Financial and credit problems are expected to smolder into next year. The International Monetary Fund has described the financial shock as the biggest “since the Great Depression.”

But Bernanke—a scholar of the Depression—has said while the current experience is not “remotely like” that, the ongoing financial distress in the U.S. is among “the most severe episodes of the post War era.”

The roots of the current crisis can be traced to lax lending for home mortgages—especially subprime loans given to borrowers with tarnished credit—during the housing boom.

Lenders and borrowers were counting on home prices to keep zooming. But when the housing market went bust, home prices plummeted.

Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising mortgage rates also clobbered some homeowners.

“As we look back on it, we see that there were just some serious failures in the management of risks,” Bernanke told Congress last month. “The regulators bear some responsibility on that.”

As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending.

Ben Bernanke
Mary Altaffer / AP
Federal Reserve Chairman Ben Bernanke.

That crimped consumer and business spending, dragging down the national economy _ a vicious cycle the Fed has been trying to break.

To brace the wobbly economy, the Fed has slashed its key interest rate by a whopping 3.25 percentage points, the most aggressive rate-cutting campaign in decades. Yet, those cuts also aggravated inflation.

The Fed has taken a number of unconventional—and some controversial—actions to shore up the shaky financial system and to get credit—the economy’s lifeblood—flowing more freely.

In the broadest expansion of its lending powers since the 1930s, the Fed agreed in March to let investment houses draw emergency loans directly from the central bank. At the time, the Fed feared other investment banks could be in jeopardy after a run on Bear Stearns pushed it to the brink of bankruptcy.

As part of JPMorgan Chase‘s


JPMORGAN CHASE & CO
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In July, the Fed said troubled mortgage giants Fannie Mae


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For years, such lending privileges were extended only to commercial banks, which are subject to stricter regulatory supervision.

Fannie and Freddie’s problems continued this week as concerns over their capital-raising abilities and the prospect of a government bailout caused shares of both to plunge.

The Fed also gave banks another way to tap short-term loans and let investment firms swap risky investments for super-safe Treasury securities.

Those programs aim to help squeezed financial companies overcome credit problems so they can keep lending to customers.

Some critics worry the Fed actions could put taxpayers on the hook for billions of dollars and create a “moral hazard,” where financial companies might feel more inclined to take extra risks in the future because they believe the Fed will ultimately bail them out.

Bernanke has repeatedly defended the Fed’s decisions saying they were needed to avert a financial catastrophe that could have plunged the economy into a deep recession.

The Fed chief also has said he doubted taxpayers would suffer any losses. The Fed “never lost a penny” in past lending maneuvers, Bernanke said.

Some economists and lawmakers blame former Fed Chairman Alan Greenspan for feeding the housing bubble that eventually burst by leaving rates at extraordinary low levels for too long.

The Greenspan Fed in the summer of 2003 dropped its key rate to 1 percent, the lowest in more than four decades. The rate stayed there for a year before the Fed started raising rates to curb inflation.

Greenspan also has been criticized for failing to crack down on certain dubious lending practices that led to the explosion of risky subprime mortgages. Greenspan has said the benefit of expanded home ownership in the U.S. was worth the risk.

Bernanke, who took over the Fed in February 2006, pushed for tougher regulations in this area, which were adopted in July.

Worried about inflation, the Bernanke Fed has halted its rate-cutting campaign. The Fed is expected to leave rates at the current 2 percent, a four-year low, when it meets on Sept. 16 and probably through the rest of this year.

But Richard Fisher, president of the Federal Reserve Bank of Dallas, wants to boost rates, fearing inflation could get out of hand.

If more Fed members join Fisher’s camp next month, Bernanke will find himself trying to douse more fires: a Fed fragmented over when to boost rates, and heightened concerns about inflation engulfing Wall Street and Main Street.

It’s back to basics to dress up the Windows brand

By Richard Waters

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It is written somewhere in the newspaper columnists’ code of conduct that you should never take pot shots at an easy target. For readers it has all the suspense of watching fish being shot in a barrel. It also feels morally reprehensible – the journalistic equivalent of deliberately kicking a small dog.

So be warned: this is one of those columns that breaks the code of conduct.

There is no other way to write about Microsoft’s generally woeful handling of its Windows brand, and the marketing of the Windows Vista operating system. On any financial measure you care to take, Windows and the Office suite of software applications are two of the world’s most successful commercial products. The problem is that they generate as much enthusiasm as a bowl of cold porridge.

Microsoft faces a fundamental problem . Many users do not want to upgrade to new versions of the software. If there is a value proposition, Microsoft has failed to explain it to its customers.

Bill Eline, chief information officer of Parker Hannifin, a Midwestern manufacturer with $10bn (€6.8bn, £5.4bn) in sales, is typical. “We are delaying deployment of Vista as long as possible,” he told me the other day. “It doesn’t really bring any value at all to us.”

Surely, I ventured, there is at least some small benefit to switching to the latest versions of Windows and Office, once you get over the hassle? “We’d much rather stay with the ones we have,” he replied. “It’s just more stuff people don’t know how to use.”

When users of your flagship products feel like this, it is usually a sign that you are in trouble – though thanks to its PC software monopoly and the very long time it takes for new computing architectures to take hold, it could be many years before that trouble becomes apparent.

So how could you make people actually get a lump in their throat when they think about Windows? That is the challenge before Crispin Porter Bogusky, the advertising agency Microsoft has hired to devise a breakout campaign for Windows. The agency has experience of this kind of thing, having recently breathed life back into the moribund Burger King brand.

It is worth going back to advertising basics. The key to successful product positioning, according to David Ogilvy, the legendary adman, is to give a clear explanation of “what the product does, and who it is for.”

Writing in Ogilvy on Advertising, he gave the example of Dove soap. He could have positioned it as a detergent bar for men with dirty hands, but instead sold it as a toilet bar for women with dry skin. Soap advertising never looked back.

The positioning of the Windows brand has failed to meet this simple test. Consider the “what it does” part. Yes, it is an operating system, but how does that make your life better or help you succeed with the opposite sex? Confusing the picture, Windows is also the name of a group of online services under the Windows Live banner. Windows Live OneCare is a fine service – I know, I use it – but I am at a loss to see what it has to do with my PC operating system.

Compounding this problem has been the lack of a clear message around Vista. This is not just a marketing problem: it has its roots in the development process that gave birth to the much-maligned piece of software.

I am still struck by something Ray Ozzie, Bill Gates’s successor as chief software architect, told me soon after he joined Microsoft three years ago. He never personally gives the green light to a new software project, he says, until the developers have written down, on a single sheet of paper, exactly what benefits this new product is meant to bring to customers.

Vista’s planners fell into the trap of taking a product that was already trying to be all things to all people, then setting out to improve it across the board. No single change to the software has stood out.

That has left the field wide open to Apple, which was quick to step into the vacuum. It is pretty clear from Apple’s cheeky ads what Windows does: it crashes, exposes its users to viruses and generally turns them into tedious, colourless characters.

This leads to the second problem that Microsoft has failed to address in its marketing: who is Windows for?

The problem, again, is partly a function of the product’s massive success: after all, Windows is for everyone. To be more precise, it is for software developers who write programs to run on it, for corporate IT professionals who have to keep battalions of PCs running and for you and me, the average customers, who just want to do basic stuff.

The brains at Crispin Porter no doubt have a solution for the revival of the brand. But here is mine – free of charge.

First, restrict the Windows brand to the computing platform, not the services that run on it. Digital life is getting difficult: you can rely on Windows to make it all fit together. It just works (despite what Apple says). Windows users may not be hip, but they are cool, got-it-together kind of people, they have an edge in their understated, laid-back way.

Next, make sure the marketing types have a say early on about the next Windows (due in 18 months). It needs to make life better in some way. The implicit claim “Now with More Window!” is not enough.

Then focus all the company’s efforts on building new service brands to run on top of Windows. This is where the users’ passion really gets ignited. Oh, and lay off the cold porridge.

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