New H-1B hiring bill takes aim at tech firms

Lawmakers may be setting the stage for the fight over broader immigration reform

By Patrick Thibodeau

The two lawmakers who successfully added H-1B hiring restrictions to the financial bailout bill earlier this year have introduced legislation that would bar any firm that lays off 50 or more workers from hiring guest workers.

This legislation, introduced by Sen. Bernie Sanders (I-Vt.) and Sen. Charles Grassley (R-Iowa), could potentially affect a broad swath of tech firms that have laid off large numbers of workers but continue hiring.

The high-tech industry overall has laid off more than 345,000 workers since August 2008, according to the two senators in the unveiing of what they called the Employ America Act.

“With the unemployment rate over 10%, companies that undertake mass layoffs shouldn’t need to hire foreign guest workers when there are plenty of qualified Americans looking for jobs,” said Grassley, in a statement yesterday.

In February, Grassley and Sanders moved to prohibit any financial services firm that received money from the Troubled Assets Relief Program (TARP) from hiring H-1B holders. That blanket restriction on hiring wasn’t adopted, but Congress did agree to automatically make any firm receiving TARP funds “H-1B dependent.”

A company is considered H-1B dependent if more than 15% of their workers are on the H-1B visa, but the TARP restriction applies regardless of the percent of visa holders on the payroll. Companies that are H-1B dependent must, among the things, make good faith efforts to hire U.S. workers first.

With the Senate expected to receive an immigration overhaul bill early next year, the prospects for any H-1B-related legislation is uncertain and probably unlikely to pass.

Grassley and U.S. Sen. Dick Durbin (D-Ill) introduced the H-1B and L-1 Visa Reform Act of 2009 earlier this year (S.887) that would set a number of restrictions on H-1B use, including the so-called 50-50 provision that would prohibit any firm with more than 50 workers from having more than half workforce on H-1B or L-1 visas. That provision is aimed at Indian outsourcing firms. The legislation also sets higher salary standards for visa workers as well as anti-fraud provisions.

Conversely, U.S. Rep. Jeff Flake (R-Ariz.) has proposed legislation that would to increase the H-1B cap and that would exempt foreign graduates of U.S. Ph.D. programs from counting toward a cap on H-1B visas.

The Sanders-Grassley bill would apply as well to companies hire workers on the H-2B visa, which is used in occupations such as construction, health care, food service, among others.

http://www.computerworld.com/s/article/9141198/New_H_1B_hiring_bill_takes_aim_at_tech_firms

Hollywood wants to own your outputs (and that’s a good idea)

Opinion: the cable industry’s top man in Washington wants to make his case to Ars readers over Selectable Output Control (SOC)—Hollywood’s ability to shut down specific outputs on your A/V gear to prevent piracy. Far from opposing it, geeks should love SOC, he says; it’s technological progress in action, it won’t break your (current) TV, and it’s good for consumers.

By Kyle McSlarrow

We like to encourage debate in hot topics in tech policy and law. This week, we’re focusing on Selectable Output Control, which Hollywood and the cable industry are both pushing hard for at the FCC. We invited Kyle McSlarrow, head of the National Cable & Telecommunications Association (cable’s trade and lobbying group in Washington) to take his best shot at convincing Ars readers of the virtue, wonder, and necessity of SOC. Ars will be publishing its own response from our resident SOC expert, Matt Lasar, tomorrow.

SOC lets content owners exert fine-grained control over the outputs on your A/V gear in order to better protect their “high-value” content. But McSlarrow says that’s not as terrifying as it sounds—it’s just technological progress in action, and the end result is good for everyone. Convinced, or still skeptical? Let us hear your thoughts in the discussion thread.

How could anyone object to such awesomeness?

A competitive marketplace with a growing list of video providers all vying for consumer attention—cable, satellite, telco, broadband, mobile, Netflix, etc.—has also brought creative thinking about new ways to bring consumers more content when and where they want it.

From our vantage point, delivering the latest hit movies to consumers’ homes—far earlier than they can watch those movies at home today—is one of the obvious next steps. Why shouldn’t you be able to watch the latest movie in the comfort of your own living room (and on your own schedule) months before you can now buy it on DVD or watch it through conventional Video-on-Demand (VOD)?

Consumers, content companies and distributors all benefit if more content is out in the marketplace sooner. Sounds like a slam dunk to me, but surprisingly, some object… and strongly.

The debate about delivering first-run movies to consumer homes earlier than currently available is really quite simple—delivering high-value content has to be done properly in order to protect the security of the material. If movie studios aren’t convinced that their movies, which often represent years of expensive investment, can be protected from unauthorized copying and distribution, consumers won’t get that content… or not as soon as we in the cable industry would like them to.

The Federal Communications Commission (FCC) has set up a process—called the Selectable Output Control (SOC) rule—that would enable us to provide that protection so content owners have the confidence they need to distribute their high-value content sooner.

In 2008, and again recently, the Motion Picture Association of America (MPAA) has asked the FCC to support SOC. NCTA has also met with Commission officials to express our support.

SOC does not break your TV

Opposition to SOC from some in the public interest community—led by the group Public Knowledge (PK)—has involved a series of incorrect accusations in letters (here, here, here, and here) and videos urging consumers to “Tell the FCC to Say ‘No’ to the Cable Kill Switch.”

In this video, PK Legal Director Harold Feld argues that SOC “breaks 25 million television sets,” and causes your personal devices—such as your TiVo or Slingbox—to no longer function. Feld says that movie studios, as well as cable operators and satellite providers, would “like to be able to remotely turn off your Slingbox, turn off your DVR, turn off anything that’s coming out of the TV set that [they] don’t directly control.”

A recent post in Ars Technica agreed with PK, suggesting that the “output changes [MPAA] wants could, in fact, hobble some home video systems.”

If that were the case, I could certainly understand the opposition. But it simply isn’t true. SOC doesn’t break anything, a topic both we and MPAA have addressed repeatedly, including in our Reply Comments last summer.

We noted in those comments that existing devices are not harmed by the use of SOC—if you have a TV set that doesn’t support SOC, then you simply wouldn’t be able to order these new movies at all. But nothing in the use of SOC prevents your existing TV from doing all the things it can do now.

The situation is analogous to any early adopter who acquires new equipment which, with the passage of time, cannot access as easily (or at all) new services coming down the road. From computers to cell phones to televisions, that has been and likely always will be the case—something Ars readers probably know more about than most. The important point is that nothing is being taken away from those early adopters, and other consumers with more capable devices will simply have more viewing options. Indeed, there can be no public interest justification for denying new choices to a majority of consumers simply because a small minority cannot avail themselves of those choices.

Critics have also argued that the MPAA’s bid for selectable output control could force some consumers to buy new home theater equipment. But both MPAA and NCTA have demonstrated that an SOC waiver simply means that a consumer’s current gear without protected connectors will work exactly the same way it does today, and newer devices with protected connectors (including millions of devices in homes today) will be able to take advantage of the earlier release of movies to cable and satellite customers using SOC.

Should we go back to the original iPod?

When Apple introduced the “Classic” iPod with the ability to rent movies, earlier generation iPods still functioned well, played music, and (for 5G iPods) played video, but they didn’t play rentals. Apple’s release didn’t suddenly render your older version useless, but you needed to purchase the Classic to get access to the video rental library. So while your “older” device may not have all of the features of the latest model, it certainly still works as intended when you bought it and isn’t “screwed up” (another PK reference).

But if you buy into the anti-SOC argument, you would assume that there should have been a massive outcry against the new iPod and its rental feature. Instead, here is what Ars itself had to say on the subject:

“Apple has answered the calls of consumers and critics with a slick, friendly movie rental section. After playing with it for a week, I’m still inclined to say that it’s off to a strong start. Though other services may have a superior catalogs (for now) or integration with other living room devices, none reach iTunes’ signature ease-of-use or integration with the world’s most popular digital media players.”

And what did Ars say about restrictions on the use of the new iPod?

“As for why movie rentals have these specific new DRM rules applied to them, they’re clearly conditions enforced by studios interested in locking down their rental content in every way possible. A crack for iTunes DRM is a scary prospect for execs interested in protecting their content and getting paid their dues, and a movie that typically sells for $15-20 at retail getting cracked for as little as $2.99 must be even more insomnia-inducing. These were likely some of the compromises Apple had to make in order to score all the major studios, and perhaps to launch a digital rental section in the first place.”

Ars clearly recognized that protection of content played a critical role in content owners being open to providing that content via the iTunes store. The reviewer is exactly right that such protections were likely a prerequisite for iTunes rentals launching at all.

SOC won’t stop piracy altogether, although it will make it more difficult. And the benefits of incorporating adequate content protection that will open up earlier release windows and provide consumers more viewing options clearly outweighs the unproven harms alleged by opponents of the SOC waiver.

Technology changes all the time. And the pace and intensity of innovation across the board in technology, communications networks, and consumer electronics is undoubtedly going to raise these types of issues with greater frequency. I don’t pretend that these issues are necessarily easy. But it does strike me that in order to continue providing consumers more services, more choices and the opportunity to do things they currently can’t do today . . . we shouldn’t let the perfect be the enemy of the good.

Not all consumers are going to be first adopters; not all technology changes are going to work instantly, seamlessly, and magically on every device currently in the marketplace. Taking practical steps, like approving the SOC waiver, that move us down the path of greater consumer choice is a far better policy choice than standing pat, or pretending that creators of content are going to accept unnecessary risks with their investments.

http://arstechnica.com/tech-policy/news/2009/11/hollywood-wants-to-own-your-outputs-and-thats-a-good-idea.ars

Wall Street Profits On Pace For Record, Industry Recovering ‘Faster Than Expected’: NY State Comptroller

It took Wall Street just one year to make its way back to record profits.

According to a report released Tuesday by the comptroller of New York State, Thomas P. DiNapoli, Wall Street is turning around “much faster than expected” and is on pace to pull in record earnings this year.

New York City’s four largest investment firms — Goldman Sachs, JPMorgan Chase, Merrill Lynch and Morgan Stanley — earned $22.5 billion in the first nine months of 2009. Wall Street’s earnings, should they remain steady for the rest of the year, could lead some firms to eclipse 2007’s record profits.

From DiNapoli’s report:

“The national economy is slowly improving, but Wall Street has recovered much faster than anyone had envisioned. Profitability is on track to exceed 2006 levels, which was a banner year for the industry. Strong profits have been driven by low interest rates, which reduce the cost of doing business.

Compensation is also increasing faster than expected, leading to expectations of higher bonuses. The federal government, which spent trillions of dollars to support the financial sector, has taken steps that may restrict cash bonuses and defer compensation to future years in an effort to reduce excessive risk-taking and reward long-term performance. While these initiatives may reduce personal income tax collections in the short term, New York State and New York City could benefit from increased stability in the financial sector. industry added 3,600 jobs in September 2009.)”

The six largest bank holding companies in the U.S. dedicated $112 billion to compensation during the first nine months of the year, the report noted. Even Merrill Lynch, which last $41 billion in the first nine months 2008, is expected to pay out sizable bonuses this year.

Deeper in the report are some indications of the disparity between Wall Street’s ability to generate cash for its employees and its ability to create jobs and stimulate the larger economy. Though each new job on Wall Street creates two additional jobs in other industries in New York City, pay for bankers and traders may still be out of whack. “The securities industry accounted for 24 percent of the wages paid in New York City in 2008, even though the industry accounted for only 5 percent of the jobs,” the report stated.

The average securities industry salary in 2008 was $382,130, down from a peak of $401,500 in 2007. (Keep in mind that the median income in America was approximately $50,000 in 2007.)

The average securities industry salary in New York was more than six times greater than in other industries. And since 2003 salaries in other industries in New York have grown just 20.4 percent, while Wall Street pay has jumped 73 percent.

“Consumers are still finding difficultly accessing the credit markets,” Napoli’s report states, while commercial credit has declined by 52 percent since its peak in July 2007.

Follow the link to READ the entire report – http://www.huffingtonpost.com/2009/11/18/wall-street-profits-on-pa_n_361811.html

Tobacco Companies Using Loophole To Avoid Hundreds Of Millions In Taxes

WASHINGTON — With a simple marketing twist, tobacco companies are avoiding hundreds of millions of dollars a year in taxes by exploiting a loophole in President Barack Obama’s child health law.

Obama and Congress increased taxes on tobacco products earlier this year to pay for expanded children’s health insurance, but tobacco for roll-your-own cigarettes saw a disproportionate leap, from $1.10 to $24.78 per pound. Some predicted the tax would kill the roll-your-own industry, which had offered a cheaper alternative to packaged cigarettes.

But tobacco companies quickly adapted. The Associated Press found that as soon as the tax was on the books, companies all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It’s still destined to be rolled and smoked, but it’s taxed at barely a tenth the rate, $2.83 per pound.

Normally, pipe tobacco is coarser and moister than cigarette tobacco. But nothing says it has to be. In fact, the federal government says the only distinction between the two is how it’s labeled. That effectively gives tobacco marketing executives an opportunity to shape the company’s tax rate.

Nearly overnight, roll-your-own brands like Criss Cross and Farmers Gold came off the shelves, replaced by pipe tobacco with the same names. The cuts may be slightly different, but they’re suitable for rolling. Knowing this, retailers steer customers to the new products, sometimes with a wink and a nod, sometimes with outright advertising.

“They tried to make a product within the elements of the law that they could, in fact, market as pipe tobacco,” said Scott Bendett, owner of Habana Premium Cigar Shoppe in Albany, N.Y., which advertises the new pipe tobacco for hand-rolled cigarettes.

Tobacco companies say they’re just trying to find a legal way to stay afloat after being saddled with an enormous tax increase.

Because the small, independent companies in the roll-your-own market are often overshadowed by the huge, publicly held cigarette companies, the sudden shift toward pipe tobacco caught researchers by surprise.

Article Continues – http://www.huffingtonpost.com/2009/11/17/tobacco-companies-using-l_n_360253.html

(Creating Jobs – One Way) – Repeal The Minimum Wage

Art Carden

It wastes resources and hurts the poor.

In July, the federal minimum wage rose from $6.55 per hour to $7.25 per hour. Before it went into effect, the Shelby County Commission in Tennessee passed an ordinance requiring firms that contract with the county to pay a “living wage.” Similar ordinances are in place around the country.

But these laws actually eliminate opportunities for low-skill workers and waste resources. They also couldn’t have come at a worse time: The last thing people on the margins of the labor market need are laws that will make them more difficult to employ. With unemployment hovering near 10%, perhaps now is a good time to consider repealing the minimum wage.

This is a standard application of basic economic principles. Demand curves slope downward, which means that people wish to buy more of something as it gets cheaper and less of something as it gets more expensive. Supply curves slope upward, meaning people are willing to do more of something as the rewards increase and less of something as the rewards decrease. In competitive markets, minimum wages create unemployment: While they draw more people into the labor market, they reduce the amount of labor companies wish to hire.

In the complex American labor market, these effects may be difficult to identify, but a comprehensive survey research on minimum wages by David Neumark and William Wascher finds that minimum wages do, in fact, reduce employment. As Neumark argues in a Wall Street Journalarticle, the best estimates suggest that this past summer’s minimum wage increase will likely destroy approximately 300,000 jobs that would otherwise be filled by teenagers and young adults. For example, summer camps cut back on hiring in response to the weakening economy but also in response to the coming increase in the price of labor.

Even if a higher minimum wage doesn’t manifest itself in lost jobs as such, it will lead to fewer hours, reduced benefits or both. Some workers who would have received paid training won’t. Employee discounts and other perks might fall. Some jobs that would have been created in the absence of a higher minimum wage won’t be–self-checkout scanners at grocery stores are in part a response to higher labor costs–and there are many margins on which employers can adjust compensation without necessarily firing people.

There are other ways in which a minimum wage is a raw deal for low-skill workers. One is its effect on experience in the labor market and, therefore, future earnings. Since having a job is one of the most important ways to acquire valuable skills, today’s minimum wage-induced unemployment translates into tomorrow’s reduced earnings.

Under-employment among young black males and low earnings among older black males are perennial problems explained in part by the minimum wage. Minimum wages and other regulations on the labor market lock a lot of younger black males out of the labor market, which means they do not acquire as many skills as they would if they were employed. When they are older, therefore, they earn less. In the 1960s, Milton Friedman said that the minimum wage is a crime against black Americans.

There is some evidence that this is the case in the most recent Employment Situation Summary released by the Bureau of Labor Statistics. The change in the unemployment rate for all workers between July and August was 0.3 percentage points (from 9.4% to 9.7%) while the change in the unemployment rate for “Black or African American” workers was double that–0.6 points (from 14.5% to 15.1%).

For workers classified as “Hispanic or Latino Ethnicity,” there was a 0.7 percentage point increase in the unemployment rate (from 12.3% to 13%). Between August and September, the Hispanic/Latino unemployment rate recovered slightly, while the unemployment rate for black workers increased again, from 15.1% to 15.4%. Workers in these categories might be disproportionately affected by the economic downturn, but they are also disproportionately affected by the minimum wage increase.

Minimum wages also feature a particularly cruel irony. Some proponents of the minimum wage argue that even if employment does fall, it is still a good policy because it might lead to a net increase in employees’ incomes. This appears to be true at first, but the expected gains from the higher minimum wage–plus part of what workers were previously taking home–will evaporate as workers jockey with one another to obtain the resource transfers promised by the minimum wage.

The minimum wage drives a wedge between the marginal value of an hour of labor and its marginal cost. This provides incentives for people to waste resources trying to appropriate the transfer–by paying lobbyists, for instance–or through more innocuous channels, like waiting in line at the employment office. No new value is created, a lot of value is destroyed and the workers we are trying to help are worse off as a result.

But the minimum wage controversy speaks to a larger issue. The market process reveals the marginal value of a given hour of labor, but supporters of minimum wages assume that the impersonal market process is somehow capable of committing injustices. This is a line of thinking that is centuries out of date. In Medieval times, markets were hampered by the “just price” doctrine, which basically held that, in any transaction, there was a morally correct price and other prices that were morally incorrect. There was no compelling theory for why some prices were morally correct and some were not; further, there was nothing to ensure that the mechanism by which these prices were determined was legitimate. In the same way, can we reasonably expect to identify those who are blessed with sufficient moral insight as to be able to determine which wages are “just” and which wages are “unjust”?

Unfortunately, this is a point that has to be made over and over again. No matter how they are packaged, restrictions on how labor markets operate ultimately destroy wealth and hurt poor workers. If Neumark’s estimate is accurate, then as a result of a minimum wage increase, about 300,000 people will be denied the opportunity to acquire the skills they need to succeed later in life.

Art Carden is an assistant professor of economics and business at Rhodes College in Memphis, Tenn., and an adjunct fellow with the Oakland, Calif.-based Independent Institute. He is a regular contributor to Mises.org, Lifehack.org and Division of Labour.

http://www.forbes.com/2009/10/16/minimum-wage-labor-economics-opinions-contributors-art-carden.html

How Credit Raters Fended Off Oversight From Congress And The SEC

Editor’s Note: This is the second of three articles by the Investigative Fund on the credit rating companies. Read the first article here.

When the nation’s top credit rating companies came under attack in Washington in recent years, Charles E. Schumer often emerged as their strongest ally.

As recently as 2006, the senior senator from New York questioned whether new oversight legislation was necessary given that the companies, “located in the great city of New York,” were already “making good-faith efforts to improve the transparency of their ratings.” At a Senate hearing that spring, he encouraged the chairman of the Securities and Exchange Commission not to ignore the raters’ central argument against government interference – that their ratings of bonds are just opinions, protected by the First Amendment.

But a year later, as the nation reeled from an economic meltdown, the Democratic senator changed his mind. He lashed out at the companies for awarding top grades to bonds comprised of high-risk mortgages. When the bonds defaulted, investors lost billions.

“My particular bugaboo here are the credit agencies,” Schumer told a press conference in December 2007. “The investors who bought this can’t be expected to know all the nooks and crannies.”

Schumer’s turnabout is at once a symbol of the credit rating industry’s past success on Capitol Hill and its more precarious future. Some of the same politicians who used to go to bat for the companies are supporting bills in the House and Senate that would mandate stricter oversight.

Yet passage of either bill is far from assured, and in the meantime the three big raters — Standard & Poor’s, Moody’s and Fitch — are spending record amounts to lobby lawmakers and regulators.

For years, the credit raters have stated that they are open to stronger supervision from Congress and the SEC. But behind the scenes they repeatedly have quashed or watered down potential government rules by arguing that, much like a newspaper editorial, ratings are protected by the constitutional right to free speech, according to a Huffington Post Investigative Fund review of congressional testimony, SEC documents and lobbying reports.

The companies say they gather facts to form educated opinions about the safety of bonds. Ratings are not, the companies say, guarantees that the bonds will or will not default.

So far the courts have agreed with the credit raters, but some specialists in constitutional and securities law find fault with the argument that a bond rater is akin to a journalist.

“To the extent that they are successful in claiming protections under the First Amendment, this could have rather dangerous consequences and seriously undermine the sense of transparency in the U.S. capital markets,” said Michael Siebecker, a University of Florida law professor and former arbitrator for the National Association of Securities Dealers.

Pushing Back the SEC

Investors rely on credit rating companies to be their eyes and ears in the bond markets.

The companies have been around for a century, growing increasingly important to the U.S. and global financial systems. When corporations, banks or local governments want to borrow money from investors, they issue debt in the form of bonds. The rating companies determine the likelihood of default by assigning bonds a letter grade — ranging from the safest triple-A to the “junk” bond status of C or lower.

Until the 1970s, the raters charged investors for their work. Then they shifted, assigning fees to the corporations that issue the bonds. Critics have claimed that the switch caused an inherent conflict of interest, giving the rating companies the incentive to please the bond issuers rather than the investors.

The idea that the companies needed more accountability gained traction at the SEC in the mid-1990s. But nearly every time the SEC has proposed credit rating regulation over the last 15 years, the companies have filed comments with the commission invoking the First Amendment defense, records show. In response, the SEC has often either abandoned or modified its attempts.

In 1997, when the SEC aimed to define the job of a credit rating agency, the general counsel for Moody’s filed a comment objecting that among other things new regulation would “Erode the First Amendment rights of all publishers of credit opinion.” The SEC eventually abandoned the plan.

In 2000, the SEC was pondering a crackdown on insider trading. If financial players selectively disclosed information to an interested party, the SEC wanted them to share the information publicly.

Moody’s spoke up and asked for an exemption for the credit raters. “The rating agency’s role is analogous to that of a newspaper or magazine publisher, not to the role of a legal or financial advisor,” the company’s vice president said in a comment filed with the SEC.

The SEC approved the rule–and the exemption for rating companies.

‘On a Pedestal’

In the wake of the Enron scandal, the raters finally braced for a change. The companies had left high grades on Enron’s bonds just four days before it filed for bankruptcy in 2001.

At an SEC hearing in 2002, the commission’s chief economist challenged the rating companies to voluntarily drop their free-speech claims. Leo C. O’Neill, then president of S&P, declined. “I don’t think that we should be asked to waive our rights under the First Amendment,” he said.

No new rules arose from the hearings.

In 2003, the SEC did float the idea of having its staff inspect the companies’ rating procedures. O’Neill again rebuffed the SEC, this time in a comment filed with the commission. The plan “would likely run afoul of fundamental First Amendment principles,” his comment said.

The SEC’s plan never materialized.

Failing to impose rules on the credit raters, the SEC instead turned to a voluntary oversight plan. Jerome Fons, a Moody’s managing director, recalled in a recent interview that he was on vacation in March 2004 when the SEC called to pitch the idea.

Fons jumped at the plan, he said, and his bosses were receptive. “We thought it was great,” Fons said. The voluntary plan balanced the First Amendment protections with concerns that the companies were unregulated, Fons said.

Eventually, though, the credit raters learned that as part of the plan the SEC’s enforcement officers wanted access to some of their records. “That’s when the lawyers said, ‘No, that’s not going to happen,’” said Fons, who now consults on credit issues.

In an interview, Richard Y. Roberts, who was an SEC commissioner from 1990 to 1995, said the SEC “put the rating agencies on a pedestal.”

Roberts said he first warned the commission 15 years ago about the danger of lax oversight. “They did not use the authority they had, even though it wasn’t much,” he said.

An SEC spokesman declined to discuss decisions made under past SEC chairmen or the commission’s current regulatory proposals.

‘That Would Be Pleasant’

On the wall of his Langhorne, Pa., law office, former congressman Michael Fitzpatrick hangs a framed copy of the bill that he had hoped would rein in the rating companies. It reminds him of both a legislative victory and a lost opportunity.

In 2005, as a freshman Republican on Capitol Hill, Fitzpatrick was alarmed that the rating companies were players in virtually every recent financial mishap yet had little oversight from the SEC.

“We believed that the rating agencies had consistently failed to perform their basic mission, which is to provide timely and accurate ratings,” he said. Meanwhile, the companies were enjoying record profits in 2005. Moody’s saw net income of $560 million and Standard & Poor’s reported $1 billion, including earnings from its S&P stock index.

So Fitzpatrick proposed a bill to allow the SEC to “take action against” the companies if they issued ratings that violated their own internal procedures. He met resistance. At a 2005 hearing, Rep. Paul E. Kanjorski (D-Pa.,) warned that Congress must be “very sensitive to the First Amendment issue posed in these debates.”

The legislation nonetheless passed the House in 2006, the first time either chamber of Congress had approved new oversight of the raters. (Kanjorski was one of the 165 Democrats who voted against Fitzpatrick’s bill. Kanjorski is now chairman of the House subcommittee on capital markets and the author of the pending credit rating oversight legislation.)

When the Senate took up Fitzpatrick’s measure, the rating companies brandished the free-speech defense. Standard & Poor’s submitted a memo to Congress that said the bill had “fatal constitutional defects.”

“Courts have repeatedly held that rating agencies are entitled to similar constitutional protections as, say, The Wall Street Journal or BusinessWeek,” Vickie Tillman, then executive vice president of Standard & Poor’s, told a Senate committee in March 2006. “This is so because the activities of rating agencies are fundamentally journalistic.”

At another Senate hearing in April 2006, Schumer, the New York Democrat, questioned then-SEC Chairman Christopher Cox about showing “sensitivity” to the companies’ First Amendment rights. Without those rights, Schumer said, investors might “threaten to sue” the rating companies or “bamboozle them, push them around.”

Schumer encouraged Cox to revive the voluntary oversight plan. “You might come up with something that makes everybody happy, and we won’t have to legislate,” Schumer told Cox.

“That would be pleasant all around,” Cox responded.

Schumer agreed: “Yes, it would,” adding that the companies still “need to be strictly regulated.”

Weakening the Bill

Despite Schumer’s efforts, Fitzpatrick’s bill advanced. But it carried an amendment — which records show was introduced by Sen. Mitch McConnell (R-Ky.) — forbidding the SEC from regulating “the substance of credit ratings or the procedures and methodologies.”

That echoed language in the Standard & Poor’s memo previously submitted to Congress, which had warned that SEC regulation of rating “procedures and methodologies” would “affect the substance of those ratings.”

The Senate’s amendment also parroted Schumer’s words at a hearing the year before: “The regulation of these entities should not mean dictating the content of their businesses.” The bill passed and was signed by President Bush in September 2006.

Fitzpatrick, who lost his seat in the 2006 midterm election, blames Schumer for weakening the law. “Mr. Schumer from New York became involved with doing their bidding,” he said. “A bill was passed that was much less reforming than what I shepherded in.”

In 2007, following the dictates of the new legislation, the SEC adopted rules requiring the companies to publicly disclose their rating methodologies, performance of their ratings and potential conflicts of interest. The SEC also aimed to prohibit credit raters from the “coercive or abusive” practice of slashing a company’s bond rating when the company refuses to buy additional ratings.

Schumer again intervened.

He and three other senators — Michael Enzi, a Wyoming Republican; John Sununu, a New Hampshire Republican; and Robert Menendez, Democrat of New Jersey — wrote Cox a letter in May 2007 to “express our concern” over the plan. The senators reminded Cox that the 2006 law required the SEC to enforce “narrowly tailored” regulations.

Four months later, it was clear the housing bubble was bursting, and the raters were vilified for misjudging mortgage-backed bonds. Schumer did an about-face. He announced at a September 2007 Senate hearing: “I will tell all of the representatives of [rating] companies that I have worked with and defended in the past — they’re good New York companies — to say nothing went wrong, that ain’t going to fly.”

He also has urged the SEC to sanction Moody’s if the commission verified allegations that the firm issued inflated ratings and covered up the error.

Asked to comment on the senator’s change in position about the rating companies, Schumer’s spokesman, Brian Fallon, said in an e-mail that the rating companies “treated their ratings as negotiable to please their clients, and ended up as one of the main culprits behind the economic crisis. As a result, Senator Schumer has been one of the lead proponents in Congress for drastically overhauling this industry’s business model in order to root out inherent conflicts of interest once and for all.”

Article Continues – plus Videos - http://www.huffingtonpost.com/2009/11/11/how-credit-raters-fended_n_354190.html

Pharma Deal With White House on Course to Net Industry Billions

Sam Stein – stein@huffingtonpost.com

The deal struck between the pharmaceutical lobby, the White House and Senate Democrats has drastically improved Big Pharma’s expected profits, a private industry report finds.

IMS Health, a company that supplies the pharmaceutical companies with sales data, predicts that new health reform legislation — combined with a projected upswing in the economy — will result in a net gain of more than $137 billion in total market sales over the next four years. The new assessment was contained in document obtained by the Huffington Post.

Back in March, that same firm projected a compound annual growth rate of -0.1 percent in the period of 2008 through 2013. In October, with the general outlines of health care reform clearly in place, it revised that number to a positive 3.5 percent for over the same period.

What happened in those seven months? The economy started looking up, for one, as did the overall prospects of health care reform. But the industry also won a major lobbying victory.

PhRMA, the lobby entity for the industry’s heavy hitters, reached a secret deal with the White House and the Senate Finance Committee in June. As detailed in a memo first published by The Huffington Post, the Obama administration agreed to oppose congressional efforts to use government leverage to bargain for lower drug prices. The White House also agreed not to shift some drugs from Medicare Part B to Medicare Part D, which would have cost the industry billions in reduced reimbursements. All this in exchange for $80 billion over ten years to help push for reform.

The Senate version of the healthcare bill still conforms to the deal (that the White House has still never officially confirmed). The House bill is in the same ballpark, although it would cost Big Pharma an extra $14 billion.

The IMS, in its revised October findings, did not reference the deal specifically, but rather made note of what it called a “NEW EVENT” — mainly that health care reform “could lead to higher priced branded products and increased healthcare coverage across the USA.”

“Branded drug price increases are expected to continue,” the firm concluded, before citing the specific reforms of the PhRMA deal.

America’s Affordable Health Choices Act of 2009 (HR 3200) has proposed several changes to the Medicare Part D program that would impact federal spending. Firstly, it would create a new rebate program that would require manufacturers of brand-name drugs to pay the federal government a rebate equaling 15% of the average manufacturer price. The finer details of the rebate will be determined as the reform legislation develops. Secondly, it would phase out the doughnut hole by simultaneously extending the benefits initial coverage limit and lowering the catastrophe threshold at specified rates leading to removal of the doughnut hole by 2022. Thirdly, as the doughnut hole is being phased out drug makers would be required to provide beneficiaries who are not eligible for the low-income subsidiary programme with a 50% discount on their spending in the doughnut hole for covered branded drugs. This initiative could create new business for pharmaceutical companies and also give seniors a price break, but only if they were paying full price on the brand product in the first instance. For pharmaceutical companies the agreement will lead to a loss if the senior was paying full price, but a win if the senior was not buying brand products at all. By making branded drugs in the doughnut hole more affordable patients may be able to afford to continue with treatment.

As explained by The New Republic’s Jonathan Cohn (who got the IMS document first):

Health reform, as currently envisioned, wouldn’t merely bring coverage to the uninsured. It would also fill in the “donut hole” in Medicare Part D–the gap in coverage that leaves beneficiaries with serious health problems paying for hundred if not thousands of dollars in out-of-pocket prescription costs.In addition, because it will take several years to close the donut hole, reform relies on voluntary discounts from the pharmaceutical industry to make drugs more affordable in the intervening years. But those discounts would apply only to name-brand drugs, not generics.

Put it all together, and you have more demand for name-brand drugs.

The structure of health care reform, as IMS goes on to note, will have benefits for the federal government, which could save an estimated $30 billion from 2010 through 2019. Patients, meanwhile, would be paying higher premiums — roughly five percent more by 2011 — in return for what the report calls greater “protection against incurring higher drug costs.” The real beneficiaries of reform, however, would evidently be the pharmaceutical industry.

IMS’s conclusions are one of the clearest affirmations yet of various media reports that PhRMA is coming out of its negotiations with the White House and the Senate as a big winner — though, as Cohn notes, the numbers IMS uses are simply projections and they may not necessarily bear out.

In a twist of sorts, it was the March IMS study that served as a small pillar in PhRMA’s push to get a deal with the White House and Senate Democrats in the first place. In the press release touting its $80 billion commitment, the lobbying entity, along with affiliated institutions, warned that, “Medicines have already begun to play a key role in bending the cost curve in the U.S,”

“In 2009, IMS projects that the U.S. market for prescription medicines will contract, declining 1-2% below 2008 levels. Going forward till 2014, IMS projects annual growth rate for prescription medicines to remain essentially flat.”

At the time, PhRMA was making the case that the $80 billion it was offering for reform was a major concession to the White House and Senate Dems. Compared to the new numbers, however, it doesn’t look like such a big concession anymore.

http://www.huffingtonpost.com/2009/11/11/pharma-deal-with-white-ho_n_353499.html

The Recession’s Over, but Not the Layoffs

By PETER S. GOODMAN

The Great Recession is over — not officially, but by popular acclaim — and in this accepted fact we are invited to take comfort, even as the unemployment rate last week rose into double digits for the first time in a quarter-century.

Experts have long assured us that economic life is governed by the business cycle, a repeating loop of downturn followed by expansion, as reliable as the seasons. In this context, worsening joblessness is like a punishing blizzard in April: Misery notwithstanding, the calendar promises spring.

But just as climate change has altered how we contemplate the seasons, some economists argue that the business cycle no longer operates as it once did, failing to replenish the jobs it destroys, and leaving our economy vulnerable to a potentially long-term shortage of work.

The tools we use to assess the business cycle date back to the 1920s, when the economy looked much different. Manufacturing jobs have declined sharply as a percentage of overall employment, while services have emerged as the primary economic engine. Automation and globalization have supplied thrifty corporate managers with myriad ways to boost production without hiring.

“It’s a change in the structure of the business cycle,” argues Allen Sinai, chief global economist at the research firm Decision Economics, who has put together a panel to discuss the subject at a January meeting of the American Economic Association in Atlanta. “There appears to be a new tendency to substitute against labor. It’s permanent, as long as there are alternatives like outsourcing and robotics.”

Certainly, those inclined to argue that commercial life has been remade are frequently chastened when — as often happens — the dusty old laws of economics reassert themselves.

During the technology boom of the 1990s, some hailed a New Economy that supposedly liberated us from the tyranny of the business cycle while explaining how companies that never earned a nickel could be worth more than established brands. When arithmetic returned, the New Economy became synonymous with silliness.

This decade, as investors bid housing prices to levels that breached all connection to incomes, some economists argued that the booms and busts of real estate had been rendered inoperative by financial innovation. We know how that turned out.

But the latest reassessment of the business cycle now has a couple of decades of data to consider. After recession gave way to expansion in March 1991, it took a year before hiring resumed in earnest — a so-called jobless recovery. After the following recession ended in March 2001, two years passed before jobs grew. Many economists assume that the third straight jobless recovery has already begun, as nervous businesses — worried about the lingering bite of the financial crisis and weak prospects — continue to hold back on hiring.

This is not how things are supposed to go, not according to our traditional view of the business cycle. When the economy is growing, businesses hire aggressively as they increase production and sell more goods. As workers spend their paychecks, they distribute dollars throughout the economy, creating business opportunities that prompt other companies to hire — a virtuous cycle. As growth slows, companies let people go, then hire anew when new opportunities emerge.

Our unemployment insurance system is built for this kind of boom and bust cycle, giving furloughed workers some cash to tide them over until their companies call them back.

But as Mr. Sinai and his colleagues see things, our view of the business cycle is antiquated. They say it fails to account for the critical role of finance and changing appetites for risk that can influence economic growth; that, crucially, it dates to a time when manufacturing employed roughly one-third of the American workforce, well before what we now call the global economy.

In the middle of the last century, a retailer in Chicago who needed goods likely had to place an order with a factory in the Midwest. Today, that retailer could well be part of a conglomerate that taps a global supply chain; it sends its orders to workers in China and elsewhere, or to domestic factories that can increase production without hiring many more people, either by further automating or by bringing in temporary workers.

Of course, automation can itself create extra factory jobs for American firms that make robotics, and these companies increasingly export their gear to the same factories in China that produce goods now landing on shelves in Chicago. Yet the overall trend appears to make many American companies less inclined to hire, reluctant to take on cost in an increasingly competitive marketplace.

Not everyone buys into this view. Labor-oriented economists like Lawrence Mishel at the Economic Policy Institute in Washington argue that the business cycle works the same as it always did; the problem is that economic growth has been weak in recent times.

“When growth comes back,” Mr. Mishel said, “so will jobs.”

Others suggest that the business cycle has not changed, but rather that we have developed unrealistic assumptions about the bounty that should accrue in good times. In this view, our expectations have been perverted by an unhealthy reliance on credit in recent years.

Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly,” recalls that when he was a graduate student, most economists viewed the normal level of unemployment to be about 7 percent.

But over the last decade, as the Federal Reserve relied upon excessively low interest rates to spur economic activity, the norm slipped steadily lower, with some proclaiming that unemployment had effectively been tamed and could remain permanently in the vicinity of 5 percent.

As Mr. Rogoff portrays it, what may seem like weak hiring in recent times is really just a return to normal. Eventually, after the lingering dysfunction of the financial crisis gives way to a more healthy flow of money, enabling more businesses to borrow and expand, unemployment will settle in to a long-term average of about 6 percent, he says.

In other words, recession still turns to expansion, much as spring follows winter, but the warm months may not be as bountiful as in years past, when easy money fertilized outlandish crop production.

In any event, we’d best get ready for leaner harvests.

Peter S. Goodman is the author of “Past Due: The End of Easy Money and the Renewal of the American Economy.”

http://www.nytimes.com/2009/11/08/weekinreview/08goodman.html?_r=1

Cisco doubles down on collaboration with 61 new products

Included are enterprise e-mail and social networking software

By Matt Hamblen

Cisco Systems Inc. massively expanded its portfolio of collaboration technologies today, announcing 61 products, including a corporate-grade hosted e-mail system called Cisco WebEx Mail as well as a social networking application and a video system to help groups securely share video content and search capabilities.

The range of products shows Cisco’s interest in integrating and expanding new video-related technologies with more traditional collaboration tools, such as instant messaging and presence, Cisco officials said. One new tool, called the Intercompany Media Engine, focuses on allowing companies to share business-to-business communications over any IP network.

The products are designed in part to make it easier for companies to incorporate content from video and other media produced on all kinds of devices, from expensive telepresence videoconferencing systems to handheld Flip video cameras, as well as photos and recordings taken from smartphones.

Alan Cohen, vice president of enterprise solutions, said in an interview that today’s new products, and Cisco’s recent agreement to buy videoconferencing vendor Tandberg for $3 billion demonstrate that “Cisco is doubling down [its investment] on collaboration.”

Cohen said he feels Cisco “intends on doing this,” referring to a completion of the massive Tandberg purchase, despite a blog by Cisco Chief Strategy Officer Ned Hooper on Nov. 2 that suggested fiscal prudence might prevent the deal from being completed.

Yankee Group Inc. analyst Zeus Kerravala said the Tandberg deal “has to go through just because video is too important to let it fall through.” Considering the broad range of products that Cisco announced, Kerravala called Cisco’s overall investment in collaboration “huge.”

Of the 61 products, Cisco’s new WebEx Mail product will have the biggest impact, Kerravala said, because of the industrywide move into cloud computing. The e-mail system will put Cisco in a better position to compete with Microsoft for e-mail customers as e-mail moves more fully to the cloud architecture in 2012, Kerravala said.

Also important, Kerravala said, is Cisco’s new Unified Communications version 8.0, which adds support for a wide range of endpoints, including more smartphones, video and Wi-Fi-ready Cisco Unified IP phones. That software will help connect the diverse array of devices that produce video. “The value of a network is proportional to the number of nodes, and there are a lot of nodes out there but they are just not connected now,” Kerravala added.

Cisco didn’t offer pricing or shipping information for the new products.

WebEx Mail will interoperate with Microsoft Outlook and support mobile devices. Built on technology acquired from PostPath, it will allow each user a 25GB mailbox, Cohen said. It will also support firewalls and other security services.

Article Continues - http://www.computerworld.com/s/article/9140473/Cisco_doubles_down_on_collaboration_with_61_new_products

The Cloud: a short introduction

Few terms have been as simultaneously hyped and reviled as “cloud computing,” but there’s definitely more to the phenomenon than just a buzzword and some vague talk of “efficiencies” and “agility.” We’ve put together this short, simple introduction to cloud computing that you can send to your CIO the next time you catch him abusing “the cloud” at a meeting.

By Jon Stokes

There’s a kind of supply-and-demand dynamic that applies to technical terms—when a few knowledgeable insiders are hoarding a word, it maintains its meaning, but when the masses get hold of it and abuse it, it’s quickly emptied of value. This is certainly the case with “the cloud,” a term that used to mean something, and now means everything and nothing. “The cloud” is so overused by startups desperate for VC money, and by big companies desperate to look like hip startups, that IT professionals are increasingly wary of anything cloud-related. It doesn’t help that the image conjured by the word is of something vaporous, flimsy, and fleeting—whatever cloud is, it doesn’t sound like the kind of thing you want to entrust critical business functions to.

Despite the fact that everyone seems to see a different shape when they stare at it, there is something worth preserving in “the cloud” as a term that usefully describes one approach to what is often called “utility computing,” which latter term is itself a metaphorical way of speaking about a business model centered around the idea of computing power as a service like electrical power.

In first defining and then describing cloud computing in this brief article, my aim is to provide a useful definition for IT professionals who are tasked with exploring cloud services as a potential avenue for finding new efficiencies, reducing fixed costs, tackling scaling challenges, and solving novel problems at Internet scale. My secondary audiences for this piece are IT pros who need to quickly explain “the cloud” to a clueless CIO, and clueless CIOs who’d rather not have to rely on IT pros to explain buzzwords to them.

This article takes a historical and comparative approach to the topic of cloud computing. First, I’ll introduce the venerable client-server model, a model of which cloud is just the latest instance, and then I’ll contrast the cloud with its immediate predecessor, the grid. Finally, I’ll describe the three-tiered model of cloud services.

A brief history of client-server

One of the most common questions asked by cloud skeptics is, “isn’t cloud just client-server?” The answer to this is, yes, it is. There are many producer-consumer relationships at every level of computing, from the individual system out to the network, that can usefully be thought of in client-server terms. For instance, a PC’s main memory serves a variety of clients scattered throughout the system via DMA requests. In general, a client-server relationship is characterized by a single producer that allows multiple consumers access to its resource pool.

In this respect, cloud fits the client-server model, and, insofar as the typical cloud client is the same as the typical enterprise client (i.e. single desktop or laptop computer), some observers have a tendency to stop at this level of analysis. But, of course, the real action in the cloud happens on the server side of the equation, and that’s where things get interesting. But before we get into the cloud in earnest, let’s take a brief look back at client-server.

There are essentially two kinds of resources that a server can provide to clients: storage and compute cycles. Client-server models can generally be categorized according to which type of resource they provide.

Chronologically, the first type of client-server pair to become popular was the mainframe and terminal. Since storage and CPU cycles were so expensive, the mainframe pooled both types of resources and served them to thin-client terminals. With the advent of the PC revolution, which brought mass storage and cheap CPUs to the average corporate desktop, the file server gained in popularity as way to enable document sharing and archiving. True to its name, the file server served up storage resources to clients in the enterprise, while the CPU cycles needed to do productive work with those resources were all produced and consumed within the confines of the PC client.

The ’80s also saw the rise of the supercomputer, which featured a large, homogenous array of processors and was designed to serve CPU cycles to “fat-client” workstations. Supercomputers were limited to government (mostly military) and government-sponsored parts of academia, not just because those sectors were the only ones with the appetite for that much number crunching power, but because those types of public institutions had pockets deep enough to afford these machines (it was very, very expensive to pool CPU cycles and serve them at a scale that could actually do useful work).

But while the supercomputer market was heating up along with the Cold War that much of its output went toward fighting, the seeds of that market’s destruction were being sown by both Moore’s Law and the Internet.

The grid, and the rise of utility computing

In the early 1990s, the budding Internet finally had enough computers attached to it that academics began thinking seriously about how to connect those machines together to create massive, shared pools of storage and compute power that would be much larger than what any one institution could afford to build. This is when the idea of “the grid” began to take shape.

The term “grid” is a metaphor deliberately drawn from the realm of electricity generation, where electric utilities provide power over a “grid” network to clients who pay on a metered basis for the electricity that they consume. The idea behind the grid model, and the related concept of “utility computing,” was that a sufficiently large number of networked computers could be pooled together like a giant, virtual supercomputer or file server, and access to that pool of compute or storage resources could be sold in an on-demand, metered fashion.

In all, grid computing features a large number of networked, often geographically and institutionally separate nodes that together make up a shared pool of compute resources. Data and computational grids are characterized by autonomous, homogeneous nodes that are loosely coupled and often use public networks. Note that the grid’s loose coupling of nodes is a major characteristic that distinguishes it from the cluster, a similar multinode computing concept with which the grid is often confused. Clusters feature nodes that are connected by very high-bandwidth links, and this bandwidth advantage gives them a lot more average compute power per node than a grid because nodes don’t spend as much idle time waiting on data to arrive.

Computational grids are more common than data grids, and applications have to be specially written for such grids and designed to scale to a large number of parallel nodes. A typical computational grid client turns to the grid because he needs to run a massive, compute-intensive job that will occupy a large subset of those nodes for a given period of time.

The grid. Different colored jobs belong to different clients. (One of those jobs belongs to the Department of Defense.)

Grid jobs are often run in batches, where available nodes are pooled together and then assigned work that monopolizes them until it’s done. (Note: many grid nodes, like those involved in the distributed.net project, also run local client software simultaneously with their grid job; but from the point-of-view of the grid, that node is still working on a single job.) When the grid job is complete, the nodes are released back into the pool of available resources, and are ready for some other client to use.

One key aspect of the grid is that multiple institutions can share the same hardware resources without worrying about anyone else on the grid gaining unauthorized access to their data. Even though the data is on a publicly accessible grid, it remains accessible only to the client that owns it. It’s also the case that the grid hardware itself often has many institutional and/or individual owners—each party contributes compute resources to a shared pool, and in exchange, contributors can bid for cycles from that pool.

Article Continues - http://arstechnica.com/business/news/2009/11/the-cloud-a-short-introduction.ars