New Biography of CBS Newsman Walter Cronkite Dents His Halo



In the early 1970s, the most trusted man in America did a very untrustworthy thing.

Unbeknownst to the millions who tuned in religiously to the CBS Evening News, Walter Cronkite cut a deal with Pan Am to fly his family to vacation spots around the world. Together with a handful of friends, they roamed from the South Pacific to Haiti, with Cronkite snorkeling, swimming, and drinking, thanks to a friend at the airline. According to Douglas Brinkley’s sweeping and masterful biography Cronkite, the news division president, Dick Salant, was upset at what he deemed a blatant conflict of interest, but took no action against his star anchor.

This was not the Cronkite I grew up admiring from the time I watched his image flickering on a small black-and-white set, the voice of authority in an age when we still revered, without a trace of cynicism, those who spoon-fed us the news.

I got to know Cronkite after his anchoring days as a charming, hard-of-hearing, slightly stodgy spokesman for old-fashioned news values against the encroachment of tabloid entertainment. There was a certain sadness about him, an old warrior who sorely missed being in the trenches. He was a creature of a simpler time, telling me in 2002 that the network newscasts should be all headlines and no features, seemingly ignoring the rhythms of the Internet age.

In reading this first major biography of Cronkite, I came to realize that the man who once dominated television journalism was more complicated—and occasionally more unethical—than the legend that surrounds him. Had Cronkite engaged in some of the same questionable conduct today—he secretly bugged a committee room at the 1952 GOP convention—he would have been bashed by the blogs, pilloried by the pundits, and quite possibly ousted by his employer. That he endured and prospered, essentially unscathed, until his death in 2009 reminded me of how impervious the monopoly media were in those days, largely shielded from the scrutiny they inflicted on everyone else.

“Nobody wanted to go after Walter Cronkite,” Brinkley says. Within CBS “he became a force of nature. He could almost dictate anything he wanted. He was the franchise.”

The book, written with the cooperation of Cronkite and his family, recounts the remarkable career for which he is justly revered: the forging of a no-nonsense newscast that began as a mere 15 minutes; the tireless (bordering on worshipful) chronicling of the space program; the dogged reporting in Vietnam that helped turn the country against the war; the lengthy segments on Watergate that elevated the scandal to a national obsession. Cronkite was a rigorous newsman, trained at the venerable United Press and blessed with the ability to expound extemporaneously on television.

But he was far more liberal than the public believed, and he let it show in unacceptable ways. Had Cronkite pulled such stunts today, I would probably be among those calling for him to step down.

Barry Goldwater distrusted him from the start, and with good reason. On the day of John F. Kennedy’s assassination, Cronkite nodded his head in thinly veiled contempt when handed a note on air that the Arizona senator had said “no comment.” Goldwater was attending his mother-in-law’s funeral that day.

“Whether or not Senator Goldwater wins the nomination,” Cronkite told viewers another day, “he is going places, the first place being Germany.” Although Goldwater had merely accepted an invitation to visit a U.S. Army facility there, correspondent Daniel Schorr said he was launching his campaign in “the center of Germany’s right wing.” During Goldwater’s speech at the 1964 convention, some conservatives fed up with the networks gave Cronkite the finger.

Four years later, after Cronkite had belatedly turned against LBJ’s Vietnam War, he met privately with Robert Kennedy. “You must announce your intention to run against Johnson, to show people there will be a way out of this terrible war,” he said in Kennedy’s Senate office. Soon afterward, Cronkite got an exclusive interview in which Kennedy left the door open for a possible run—the very candidacy that the anchor had urged him to undertake. (Kennedy announced three days later.) I am shaking my head at the spectacle of a network anchor secretly urging a politician to mount a White House campaign—and then interviewing him about that very question. This was duplicitous, a major breach of trust.

Once Richard Nixon took office, his unscrupulous aide Chuck Colson launched an investigation of Cronkite’s record in hopes of exposing him as a Kennedy liberal. And he struck pay dirt in examining Cronkite’s CBS radio broadcasts, where the anchor was far more opinionated and regularly dished what Brinkley calls “over-the-top commentary full of pro-Democratic partisanship.” Cronkite asked, for example, why more Americans weren’t livid with the administration for covering up the My Lai massacre.

“I thought that some day the roof was going to fall in ... I don’t know why to this day I got away with it,” Cronkite is quoted as saying years later. But he often gave himself deniability with linguistic hedging. Cronkite once told me his liberalism “affected how I looked at the world” but not his reporting.

Cronkite denied charges that CBS brass ordered newscasters to “go soft on Nixon.” CBS Photo Archive-Getty Images

Cronkite’s public persona was that of a pipe-puffing family man. But after covering Nixon’s historic visit to China, he let loose with a night of partying in San Francisco. Cronkite and a colleague went to an infamous topless bar, and he was later spotted dining with a go-go dancer in a miniskirt and plunging neckline. Cronkite drew a bit of tabloid attention for his exploits; I can only imagine what TMZ would have done with the inevitable paparazzi shots.

There were more serious infractions as well. In what would likely be deemed a firing offense today, Cronkite blatantly manipulated an interview with LBJ shortly before Johnson died. According to Brinkley, his producer spliced the footage in unflattering ways, reshooting Cronkite asking the questions so it appeared that he was nodding or raising his eyebrows in disgust when Johnson talked about Vietnam. LBJ saw a rough cut and pronounced it “dirty pool”; I would call it a video version of lying. Under pressure from the former president’s team, CBS undid the misleading editing, so the public never learned of the deception.

It turns out that the most trusted man didn’t always tell the truth. In 1974 Cronkite got into a spat with the rebellious Schorr, flatly denying the charge that CBS executives had ordered the evening news to “go soft on Nixon” as the president was resigning. But Cronkite’s denial was misleading. As Salant later acknowledged, “we in CBS management ... telephoned the correspondents who would be covering the story that night to remind them that it was not a time, no matter how any of them felt ... for gloating remarks or for editorial attacks.” So Cronkite’s outrage was bogus.

If his reputation as the nation’s top-rated anchor was unassailable, that may be because he guarded it so fiercely. Back in 1962, he had agreed to narrate a Pentagon propaganda film called The Eagle’s Talon, warning that “an aggressive Communist tide has spread in Europe and Asia to engulf its neighbors” and that China “has plans to dominate Asia by mass murder.” As Brinkley writes, “There he was, a civilian broadcaster, dressed in the full uniform of a U.S. Marine colonel, narrating gobbledy-gook about the ‘Red Threat.’”

A decade later, Cronkite learned that his embarrassing role was going to be highlighted in a Roger Mudd documentary for CBS, The Selling of the Pentagon. He complained bitterly, demanding that the section about him be removed. But Salant, the news chief, refused, and he was right: the network would have been denounced as hypocritical for protecting one of its own.

Looking back, Cronkite’s virtual immunity as a public figure is troubling. But I see an upside as well: he wielded his enormous clout on behalf of muscular journalism. As Vietnam and Watergate eroded public confidence in government, Cronkite emerged as a new kind of authority figure, his public image unsullied by the grime of politics. What a stunning contrast to the corrosive distrust of the news business today.

As everyone from presidents to astronauts catered to him, Cronkite used that access to drive unflinching coverage of civil rights, corruption, and especially the morass of Vietnam—when his own reporting led him to declare that ill-fated conflict a stalemate. When LBJ said that “if I’ve lost Cronkite, I’ve lost the country,” he was acknowledging that a single newsman had the power to change a national narrative. Cronkite hadn’t gone further than many other commentators, but he alone had the standing to move public opinion.

That aura made him a player on the world stage. When Cronkite prodded Anwar Sadat into saying he was willing to visit Israel and Menachem Begin into saying he would welcome the Egyptian leader, he emerged as a Middle East power broker. When Cronkite asked Gerald Ford at the 1980 Republican convention whether there would be a “co-presidency” if he agreed to be Ronald Reagan’s running mate, Ford’s failure to challenge the characterization blew up any chance at a joint ticket. Cronkite even floated a trial balloon that year that he might run as independent candidate John Anderson’s running mate.

But at times his emboldened sense of importance made him a conduit for the establishment. I remember watching him with the newly elected Jimmy Carter near an Oval Office fireplace, serving as master of ceremonies as he fielded radio calls. It was very cozy; all that was missing were hard-hitting questions.

Cronkite came to regret handing the anchor reins to Dan Rather in 1981. “Rather and company shut me out from doing anything,” he complained. I remember listening to him rail against Rather in his Upper East Side apartment, his anger still palpable after so many years.

On the day that CBS chairman Les Moonves fired several people over Rather’s botched story on George W. Bush and the National Guard—having already deposed Rather as anchor—Cronkite barged into Moonves’s office and congratulated him on doing the right thing. Moonves was able to sleep that night, he recalled, because “Walter said it was OK.”

Cronkite, of course, had been ruthless when he needed to be. But unlike Rather, who was frequently savaged by an army of critics and bloggers, Cronkite was an unassailable icon, America’s Uncle Walter, his occasional misconduct and bouts of bias shielded from public view.

Brinkley’s book will undoubtedly tarnish the Cronkite legacy. But my admiration for the man is only partly diminished. Perhaps it is too easy to judge him by today’s standards, any more than we should condemn Thomas Jefferson for owning slaves. Perhaps he simply reflected his times, when some journalists and politicians quietly collaborated, when conflicts of interest were routinely tolerated, when a powerful media establishment could sweep its embarrassments under the rug. Cronkite thrived as television came of age, always protecting what we would now call his brand. That’s just the way it was.

Fade To black.

Cronkite retired with his reptutation intact, but some other TV journalists were not so lucky.

Dan Rather

Ousted as CBS anchor in 2004 after using suspect documents to accuse George W. Bush of going AWOL from the National Guard.

Michael Savage

Fired by MSNBC in 2003 for telling a caller to the show that he was a "sodomite" who should "get AIDS and die."

Marv Albert

Fired by NBC in 1997 after pleading guilty to assault and battery charges involving the biting and abuse of an ex-girlfriend.

Peter Arnett

Reprimanded by CNN in 1998 for a project with Time that accused the Army of using nerve gas against U.S. soldiers. The report was retracted.

Michele Gillen

Demoted by NBC, which also fired three producers, over a 1993 Dateline broadcast that staged the fiery explosion of a GM truck.

Lilia Luciano

Fired by NBC in 2012, along with a producer, over deceptive editing of the George Zimmerman 911 call in the Trayvon Martin case.


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My Turn: Bring the Big Banks to Justice



I dreamed of being a trial lawyer, a character from the courtroom dramas I devoured as a boy in San Francisco. I attended trials, persuading my father to take me to the city’s superior courthouse, known grandly as the Hall of Justice. As an adult, however, my love of the legal system—a child’s dream of truth and fairness—grew more complicated, gnarled by the understanding that justice isn’t meted out equally after all, especially if you’re an investment banker.

My first inkling of this came as a doctoral student at MIT in the 1980s. I learned that large corporations outspend the government by as much as 100 to one in their efforts to shake charges, and many of my professors made millions as expert witnesses for the defense. Later, as a software entrepreneur, I watched as dozens of dotcoms went public, their stock prices inflated by the investment banks that helped them get there. Investors lost everything in the ensuing crash. But the big Wall Street firms escaped criminal prosecution, and the fines they paid were a tiny fraction of their profits.

This pattern—fines, but not prosecutions—has become the norm for offenses that would land ordinary people in jail. For example, earlier this year an Iranian-born U.S. citizen was convicted of operating an illegal money-transfer process, violating trade sanctions by sending $3 million to people and firms in his home country without proper documentation. He got a two-and-a-half-year sentence. Also this year, however, Barclays settled charges that it had processed transactions between banks in Iran, among other sanctioned countries, and U.S. entities. The bank signed a “deferred prosecution agreement,” meaning it “acknowledges responsibility for its conduct,” but the charges will be dismissed after a period of good behavior. It merely paid fines. Since January 2009, two other banks have settled similar criminal charges through fines. Nobody has been arrested.

Photos: CEOs Behaving Badly Justin Sullivan / Getty Images

During the last two decades, major U.S. and European banks have paid fines to settle charges of, among other things, accounting fraud (Fannie Mae, Freddie Mac), assisting Enron’s fraud (Citigroup, J.P. Morgan), assisting people in tax evasion (UBS), using bribery to sell financial products (J.P. Morgan), money laundering (Citicorp), and fraudulently recommending stocks in exchange for business (10 investment banks in the dotcom era). In paying the fines, none of these banks acknowledged wrongdoing.

Now we’re witnessing another round of this shameful routine. President Obama and Attorney General Eric Holder Jr. have said they would hold Wall Street accountable for the crash, warning “unscrupulous executives,” in Holder’s words, that “we will investigate you, we will prosecute you, and we will incarcerate you.” But despite fraud on a scale possibly unmatched in history, the Justice Department has not charged a single executive or firm. The Securities and Exchange Commission, meanwhile, has extracted only fines from a handful of big banks. Three of the federal judges who oversaw these cases—none of which included an acknowledgment of guilt—protested from the bench, saying the fines are “not enough to deter anyone from doing anything,” the justice is “half baked at best,” and the banks are getting “a free ride.” (Holder has defended his financial-fraud task force, stressing “the totality” of its efforts, including cases against mortgage fraud and insider trading; SEC chairwoman Mary Schapiro has noted that the bulk of its investigations are “not necessarily” done.)

It’s often argued that proving criminal-fraud cases in finance is difficult. That’s true, but when the government gets serious, it finds a way to get the information it needs. Prosecutors could also go after bankers’ personal foibles, forcing lower-level personnel to chose between testimony or jail time. That’s how investigators have crippled organized crime. Unfortunately, no one has yet shown the same enthusiasm for policing the Street.

Ferguson is an Oscar-nominated filmmaker whose latest work, Inside Job, is an exposé of the meltdown.


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Sears is Among the Companies That Likely Won't See 2019




This article originally appeared on the Motley Fool.

The stock market has absolutely been on fire over the trailing 12 months. The broad-based S&P 500 has increased by a whopping 17 percent over that time span, which is more than double the historical average increase in stocks, including dividend reinvestment, of 7 percent over a one-year period.

However, not everyone has gotten in on the party. In fact, some companies are in downright terrible shape, and they've seen their stock valuations fall accordingly. While there is no concrete method to accurately predict whether a company will survive and turn its business around, there are a handful of companies that I firmly believe could struggle to avoid bankruptcy over the next two years. In no particular order, here they are.

Valeant Pharmaceuticals International Inc.

During the summer of 2015, Valeant Pharmaceuticals was sporting a $90 billion market valuation. Today, it has fallen below $4 billion.

What went wrong, you wonder? Valeant, which had been primarily growing its business through price hikes on mature drugs and through debt-financed mergers and acquisitions, ran into a brick wall when it was caught red-handed passing along exorbitant price hikes of 525 percent and 212 percent on two cardiovascular drugs. The admission of pricing mistakes led Valeant to lose much of its pricing power (which was confirmed in its recent fourth-quarter results where pricing actually dragged on its sales), and significantly impeded its core operations.

When Valeant's core businesses began to see weakness and its EBITDA (earnings before interest, taxes, depreciation, and amortization) was adjusted lower, the debt concerns started to mount. While Wall Street had long forgiven Valeant's debt-driven growth, a blind eye could no longer be turned to a company that had more than $30 billion in net debt at one point.

Ultimately, the company's debt could be its undoing. Valeant's secured lenders keep a close eye on its EBITDA-to-interest coverage ratio as a sign of whether the company will be able to repay its loans. In recent quarters, Valeant's EBITDA-to-interest coverage ratio has fallen to an expectation of just 2-to-1, if not lower, for 2017. That's exceptionally low.

What's more troubling is that Valeant has no quick turnaround catalysts. It needs to receive a premium sale price on its assets in order to reduce its debt and raise its EBITDA-to-interest coverage ratio. A fire sale of its products most likely wouldn't do any good to appeasing the company's creditors and easing concerns about its debt covenants.

This is the crux: Valeant's core business has shown little life, its peers aren't really biting on its assets for a premium valuation, and its debt covenant ratio continues to decline. Valeant's time may be up in less than two years.

Sears Holdings Corp.

Of the three companies listed here, perhaps none has the writing more visibly written on the wall than Sears Holdings, which appears to have one foot in the proverbial grave.

Sears and Kmart have had a pretty simple strategy over the past couple of years: close lesser profitable and underperforming locations, promote its direct-to-consumer segment and emphasize the importance of its core brands, such as Kenmore, Craftsman, and Diehard. The problem is that cost-cutting isn't a growth strategy, and Sears may be realizing that a bit too late.

In January, Sears announced that it was divesting its Craftsman brand to Stanley Black & Decker for what seems like a measly $900 million, plus a 15-year royalty payment of between 2.5 percent and 3.5 percent. Estimates last year had suggested that Sears could net up to $2 billion for its Craftsman brand. The issue is that even with this cash infusion, Sears ended the quarter with only $238 million in cash and $4.2 billion in long-term debt. Even closing stores and cutting employees may not save Sears, which is burning through its capital at an incredibly fast rate.

According to Fitch Ratings, Sears is expected to burn through $1.8 billion in cash in 2017, and this includes an assumption of $250 million in cost savings from store closures and fewer inventory purchases. Even with a recent $500 million real estate loan, a debt restructuring deal, and the initial $525 million received from Stanley Black & Decker following its Craftsman divestment, Sears may not have enough capital to make it through 2017.

Even if Sears manages to survive 2017, it doesn't have a turnaround strategy that's inspiring confidence on Wall Street. It's looking to divest its most valued assets, and consumers are no longer very loyal to the Sears brand. It's probably the most likely of these three companies to meet its demise before 2019.

MannKind Corporation

Finally, we'll end as we began: with a troubled drugmaker. The third company I suspect may have a hard time making it till 2019 is small-cap MannKind.

On paper, MannKind looked like it had a winner with Afrezza, a Food and Drug Administration-approved inhalable diabetes medication for type 1 and 2 patients. According to the Centers for Disease Control and Prevention, there are more than 29 million people suffering from diabetes (mostly type 2) in the U.S., meaning there was an ample market opportunity for Afrezza. Most importantly, it was a fast-acting medication that metabolized through the body faster, and it was inhalable, which meant no needles. It had all the hallmarks of a drug capable of $1 billion or more in annual sales.

Unfortunately, Afrezza's actual results fell laughably short of expectations. After partnering with Sanofi in 2014, Afrezza sales struggled to cross the $2 million mark per quarter. Sanofi had a clause in its licensing deal that allowed it to walk away if Afrezza wasn't considered economically viable—and, needless to say, $5 million to $6 million in annual sales wasn't viable for Sanofi. In January 2016, Sanofi walked away from MannKind, leaving the company to market Afrezza by itself.

MannKind responded by utilizing external marketing representatives to sell Afrezza, but announced just weeks ago that it would abandon that idea and begin training in-house sales representatives. It's also managed get Afrezza on the formularies for  Aetna  and  Express Scripts. In some respects, MannKind is doing a lot more than Sanofi ever did.

But there's a major concern: cash. MannKind's decision to use in-house marketing representatives will likely mean an acceleration of its cash usage, since the company continues to lose money. It ended the third quarter with $35.5 million in cash, $30.1 million in credit line access from The Mann Group, and $50 million in at-the-market common stock issuances it could tap. Additionally, it had received a $30.6 million payment from Sanofi and netted $16.7 million from the sale of real estate.

Despite all of this capital added together, there's little assurance that Afrezza sales will ramp up. Its higher cost compared to needle-based insulins remains a concern, and it's going to be incredibly difficult to get physicians and consumers to switch from trusted brand-name insulin products.

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Ruchir Sharma on Inflation




For most economic analysts, the past is the present. It is a popular sport to find historical parallels with the current period, and the strong consensus now is that 2010 has 2004 written all over it.

After all, 2004 also was the second year of a global economic recovery. The Chinese economy was also overheating, and authorities there were tightening monetary policy. Following a volatile first half, the year ended up being relatively benign for financial markets as fears of inflation subsided in China and the global economic recovery rolled on uninterrupted. Analysts expect 2010 to unfold in a similar manner.

But history repeats itself only for those who don't know the details. The global economy was on much stronger footing in 2004 to withstand any Chinese tightening. Economic growth across the world averaged 5 percent that year, with the developed world fully participating in the recovery process. This time around, the global recovery is far more uneven and the annual pace of expansion is slower, at just under 3.5 percent. What's more, while a boom in exports to the West helped China maintain a 9 percent growth rate back in 2004 even as its domestic economy slowed, it can hardly expect a similar contribution from the developed world this year. Indeed, developing economies led by China are now themselves the main engines of the world's economy. In order to keep the global economic momentum going, they need to steam ahead at a pace similar to the 7 percent that they averaged during the 2003–07 boom period.

The fundamental obstacle to achieving that is inflation. It has resurfaced much too quickly in many emerging markets, especially given the ample spare capacity in the world. Commodity prices have flared up to levels far above what can be justified by any increase in underlying demand. Food and energy prices, which typically account for a third of the consumer's basket in developing countries, are already back at 2007 levels. Not only do higher commodity prices boost headline inflation, they usually also pass through to other items over time in developing economies. By mid-2010, both headline and core inflation in most emerging markets should touch levels similar to those of 2006—the fourth year of the emerging-market boom and the third of a strong global economic recovery.

Why have commodity prices climbed so far and so fast in only the second year of a subpar global recovery? The lazy explanation strewn about by several market analysts has to do with runaway Chinese demand. Facts do not bear this out, however. While Chinese demand has undoubtedly been strong, inventories for almost all commodities, from aluminum to oil, are at multidecade highs, as global demand remains weak.

A better explanation for the irrational exuberance in the commodity pits is that interest rates remain so low across the world. Financial investors spurred on by cheap money and eager to acquire hard assets after the crisis poured more than $50 billion into commodity funds in 2009—more than three times the average sum in the 2003–07 boom years. This link is evidenced by the fact that in recent weeks commodity prices knee-jerked lower at the first signs of tightening by emerging-market central banks such as China's. In 2004 too, Chinese tightening took the wind out of any buildup in commodity-price inflation, although at the cost of a domestic economic slowdown for a few quarters.

All this suggests the global recovery is precarious. It is weaker than in 2004, yet inflation is already reaching the upper limit of the tolerance band in many emerging markets, and the speculative juices are continuing to flow freely in the commodity markets. This means that central banks will have to tighten monetary policy aggressively in the months ahead to keep inflation in check. That could, in turn, derail the fragile global healing process.

Unless the link between a tentative recovery and unjustifiably high commodity prices is somehow broken, 2004 and 2010 will have little in common. The current year may instead turn to be more like one in the late 1930s or in the mid-1970s—a sharp rebound, after which both the global economy and the world's stock markets struggled, making little progress through all the slush left over in the system after the big storm.


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After a Decade of Bad Blood with Bondholders, Argentina Faces Default

“It’s one thing to put a gun to your head. It’s another thing to pull the trigger.”

So stated a high-level portfolio manager at New York hedge fund Elliott Management Corp., summing up Argentina’s predicament as it attempts to fight off more than a dozen plaintiffs who are seeking as much as $1.5 billion on Argentine debt that’s been left unpaid for more than a decade.

After exhausting every last legal option – even appealing to the U.S. Supreme Court, which declined to hear its case in June – the South American nation has until midnight Wednesday to change its mind.

If it does not pay, the consequences could be devastating for Latin America’s No. 3 economy, which is already battling some of the highest inflation on the planet, not to mention force it into its first default since 2001.

Those skirmishing with Argentina represent the last of the nation’s bondholders who refuse to accept reduced payments on their debt. The majority of Argentina’s bondholders – about 93 percent – agreed to lower payments in 2005 and 2010. By a legal quirk, the so-called “holdouts” have succeeded in halting payments to all of the bondholders until Argentina agrees to settle with them. If Argentina does not, it will officially go into default July 30.

David Tawil, president of Maglan Capital, a New York-based hedge fund that’s closely watching the situation unfold in Argentina, said Wall Street is on tenterhooks, as some think Argentina may yet broker an 11th hour deal.

“Argentina may seem like it’s out of tricks, but they have so many tricks,” he told Newsweek. “They’ve lost the legal battle, but they don’t care. It says ‘game over’ on the screen, but Argentina does not acknowledge it. People are wondering if it might still somehow find a way out of this.”

Argentina’s President Cristina Kirchner has vowed never to allow the country to submit to what she views as “extortion,” by the holdouts, which she calls “vulture funds,” and which include Paul Singer’s Elliott Management. A multibillion-dollar hedge fund, Elliott’s NML Capital division is leading a group of 19 plaintiffs demanding full payment on Argentina’s bonds dating back to its 2001 default.

In a statement last week, Elliott said talks with Argentina in the past 30 days, moderated through court-appointed Special Master Daniel Pollack, have not progressed. To many, this does not come as a surprise, as Argentina has stated before it will not pay the holdouts and has gone so far as to pass a law prohibiting the country from paying them at all.

“Argentina’s government made it clear that it will be choosing to default,” Elliott said in the statement, adding: “Its representatives simply stated that no solution was possible. This outcome is unfortunate and completely unnecessary. We will continue to seek ways to engage Argentina in negotiations, but there is currently a total lack of willingness on Argentina’s part to solve the problem.”

A representative from Elliott told Newsweek that Argentine officials have at no point agreed to speak directly with the fund and have only had contact with the special master, who has confirmed the talks have yet to gain traction.

Jay Newman, the point person for Elliott’s longstanding Argentine bond investment, has not disclosed how much is at stake for the fund. But a former portfolio manager from Elliott, Mark Brodsky, who now runs his own New York-based hedge fund, Aurelius Capital Management, estimated last year that the amount of profit he stood to make on his investment in Argentine bonds came to around $500 million.

Elliott and Aurelius both bought the Argentine bonds for pennies on the dollar after the 2001 default in hopes of making a big profit.

This is not the first arms-length standoff between Elliott and Argentina, whose tensions have boiled over in dramatic fashion before.

In an attempt to seize Argentine assets against its unpaid bonds in 2012, Elliott secured a court order to force the seizure of a 113-yard-long, Argentine naval tall ship in a port in Ghana. The incident not only grabbed international headlines, but climaxed with Argentine sailors brandishing weapons on the deck of the ship and threatening Ghana’s port officials with gunfire after waiting for weeks to be released.

The faceoff underscores just how far Elliott is willing to go to extract full payment from Argentina on its debt – even if Argentina does default Wednesday. (In fact, the default would hurt Argentina far more than Elliott, which is accustomed to long, litigious battles before reaping payouts.)

“It really does not affect us, we will just keep on going,” said the Elliott portfolio manager. “We will continue to seize assets, enforce judgments. Argentina can’t isolate themselves from the U.S. or in places where our claims are enforceable forever. That would be amazing in today’s world.”

The impasse has raised red flags about whether Washington should allow Wall Street money tussles to spill over into foreign relations, as the row prompts Argentina to seek to strengthen its ties with China and Russia.

Aurelius Capital’s Brodsky has said he believes that Argentina is a “unique” situation and poses a conflict that, despite its critics, is “less than meets the eye.” Those who object to the tactics of the holdouts, he says, are “fear-mongering.” For its part, Elliott, which has assiduously lobbied Washington to allow it to aggressively pursue repayment options on its Argentine debt without interference, has been demonstrably generous to the Beltway.

Elliott, which says it has reached out to Argentina on numerous occasions to forge a settlement, told Newsweek it remains open to exploring flexible terms on with Argentina, if the country is ever willing to negotiate.

Reached in Buenos Aires this week, Argentine government officials declined to comment. Both in New York and Buenos Aires, investors are awaiting the final verdict on the talks, which have continued. Neither Elliott nor Aurelius would comment on the status of the discussions as of late Tuesday.

“We don’t know what will happen,” said one trader at Louis Dreyfus Commodities in Buenos Aires. “We are really just hoping for the best.”

He added that some members of the firm’s team had traveled to New York this week to catch word of the outcome of the talks as soon as it might come down. Conversely, many of New York’s financial establishment have traveled to Argentina to do the same.

Privately, many observers say they do not know what to expect if Argentina defaults, because, unlike in 2001, this time it could actually pay – if it wanted to.

“I don’t know if the markets will react as strongly as with your typical default, because this is a technical default,” said Maglan’s Tawil. “The point is, there is no need for any of the disruption that’s going to happen. This is a case of two sides where each side consists of some very stubborn opponents.”

By all accounts, it is shaping up to be one of the more bizarre debt-collection tales ever witnessed on Wall Street.

“You’re talking about two sides that are not even on the same planet. They do not speak the same language. They do not play by the same rules,” Tawil said.

Perhaps a lawyer for the Ghana Ports and Harbors Authority, Asare Darko, speaking in 2012 on the tall ship debacle, had it right when he drily noted, “This is turning into an international disaster.”

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After Emissions Scam, VW Pivots to Electric Cars



This article first appeared on the Brookings Institution site.

When the Volkswagen emissions control scandal broke into the headlines in September, I wrote here how I felt like my lifelong love affair with VW had been violated.

As an environmentalist, owning a Jetta that zipped along for 42 miles on a gallon of diesel was the best of both worlds. And it was a lie. My wife, Holly Flood, said she felt like she’d been “duped,” and since then she’s vowed never to buy another VW.

I’m not so sure. But I was pleased this week to see the agreed terms for the nearly half million of us who own the smaller diesel-engine cars in the U.S. This was the largest car settlement in U.S. history.

What I like is the combination of individual and collective compensation for this crime.

Making It Right With the Customers

On the individual side, if this deal is approved by the judge in early October, my family will get our 2009 Jetta TDI sedan fixed for free (if the Environmental Protection Agency approves the fix), and we’ll get a check for $5,100. Holly says that’s perfect timing for a down payment on a new car (which will not be a VW).

I’m pushing for a plug-in electric hybrid, which we can charge with renewable energy we get off the grid from our local provider, People’s Power & Light. In our case, for every electron we use, they pay to have one electron put in from wind power somewhere right here in New England.

Hopefully we’ll have variable pricing of electricity by then, allowing us to charge the car when the juice is cheapest, like when the wind blows at night but few people are using much electricity.

The unknown for us is whether the VW fix will noticeably harm the performance of the car. I’m guessing it will, perhaps in its remarkable torque, in its gas mileage or both. But at this point, the car has tons of my wife’s commuting miles on it, so we’re hanging on to it as the in-town backup car.

Under the settlement, we could get an extra $7,000 and give up the car entirely. That may be tempting, as it’s at that point where it’s getting substantially more expensive to maintain, and the Kelley Blue Book value is around $6,000. They apparently aren’t lowballing us.

The collective part of this agreement is actually more interesting.

VW agreed to pay $4.7 billion into environmental programs, which in my estimation will eliminate more harm than they created. One estimate guessed that scores of premature deaths occurred in the U.S. from VW’s “defeat devices,” which shut off emissions controls when they were not being tested.

Most of the deaths were probably in California, where there were many more sales of diesels than elsewhere in the country. (Of course, in Europe the concentration of diesels is much greater, and The Guardian put the number of deaths at thousands in the U.K. alone.)

One part of this fund will go to replace diesel buses with electric ones. This will measurably improve air quality in inner cities, the precise places where extra-sooty VWs were causing ill health and premature deaths with their nitrogen oxide emissions.

Another part will go to install electric vehicle charging stations in California. This helps overcome the “chicken and egg” problem of people not being willing to switch to electric vehicles for fear of running out of juice. The settlement says that “Volkswagen must spend $2 billion to promote non-polluting cars ('zero emissions vehicles' or 'ZEV'), over and above any amount Volkswagen previously planned to spend on such technology.” That counterfactual will probably be impossible to prove, but the idea here is fairness.

Sociologically, this is a fascinating case, because it reveals how our society resolves scandals that killed people through knowing contamination of the environment. As Deputy U.S. Attorney General Sally Yates harshly put it, "By duping regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment."

There are individuals inside this company who deserve criminal prosecution, but apparently most of the thousands of other employees did not know what was going on.

The corporate response has been interesting, and seems to vary sharply from how most U.S. auto firms have dealt with similar lawsuits and scandals in the past. VW did not drag out the battle, but set aside $16 billion immediately as a loss, and then settled rather generously with us. (This spring, they had already given us a $500 gift card and $500 in repairs in what was essentially hush money.)

VW’s response to this crisis was creative, forward-looking and ultimately pro-social. Just a week or so ago, the company announced that its new business model was to be in electrics: It announced it'd be rolling out 31 electric vehicles in the coming years.

This is a remarkable turn for a company that pushed diesels for decades as the solution to climate change. This is what it looks like when a massive corporation whose reputation was built on trust and belief in the integrity of a brand seeks to battle its way back into a changing market.

Spending billions on charging stations and replacing diesel buses may make immediate sense. Can we say if this is helping avoid premature deaths or it is merely crass self-interest? Does it matter?

Of course it does. But my first impression of what VW did this week was of a fair deal that was not just lining my pocket. It was helping us get off fossil fuels as a society and benefiting human health and the environment in a substantial way.

And by rebuilding a major employer in Germany, the U.S. and around the world into one that might be a part of the solution to climate change, this is a significant and fairly brilliant business move to position the company for the next half century.

Or am I merely a sucker for my old flame?

Timmons Roberts is a nonresident senior fellow of Global Economy and Development at the Brookings Institution and the Ittleson Professor of Environmental Studies and Sociology at Brown University. He is a leading expert on climate change and development. Co-author and editor of 11 books and edited volumes, and more than 70 articles and book chapters, Timmons currently focuses on equity and why addressing it is a crucial part of confronting climate change.

Brookings

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