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

Sequestration Takes Effect, but Impact Is Not Immediate





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




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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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



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A Volatile Week Ends With Modest Gains


Stocks advanced modestly on Friday, leaving the Standard & Poor’s 500-stock index with slight gains after a volatile week, as strong economic data overshadowed growth concerns in China and Europe and let investors discount the impact of federal spending cuts.


Data reported early in the day showed that Asian factories were slowing and European output was falling, setting off a sharp drop at the beginning of trading in New York. But most of the losses evaporated after a report showed that United States manufacturing activity had expanded in February at the fastest pace in 20 months. Consumer sentiment also rose in February as Americans turned more optimistic about the job market.


As $85 billion in government budget cuts took effect on Friday, President Obama blamed Republicans for the lack of a compromise to avert the so-called sequester. But the stock market appeared to have already priced in legislators’ failure to reach an agreement.


“We were able to dig out of that hole, but not make any great strides on it either,” said Peter M. Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Ill. “We will probably be in a holding pattern pending some big development on a broader budget deal.”


The Dow Jones industrial average gained 35.17 points, or 0.25 percent, to 14,089.66. The S.& P. 500 rose 3.52 points, or 0.23 percent, to 1,518.20. The Nasdaq composite index advanced 9.55 points, or 0.3 percent, to 3,169.74.


For the week, the Dow rose 0.64 percent, the S.& P. 500 edged up 0.17 percent and the Nasdaq gained 0.25 percent.


It was a bumpy road to the week’s slight gains. The markets slid on Monday after inconclusive elections in Italy revived concerns about the euro zone, only to rebound in the next two sessions after the Federal Reserve chairman, Ben S. Bernanke, defended the central bank’s stimulus measures.


The low interest rates from the Federal Reserve’s monetary policy have helped equities continue to attract investors. The Dow is less than 1 percent away from its nominal intraday record of 14,198.10. Declines have been shallow and short-lived, with investors jumping in to buy when the market dips.


Advancing stocks outnumbered declining ones on the New York Stock Exchange by a ratio of about 17 to 13, while on the Nasdaq, about seven stocks rose for every five that fell.


Shares of Intuitive Surgical jumped 8.5 percent on Friday, to $553.40, after a Cantor Fitzgerald analyst, Jeremy Feffer, upgraded the stock, saying a slide of more than 11 percent on Thursday had been a gross overreaction to a news report.


Groupon shares surged 12.6 percent, to $5.10, a day after the company fired its chief executive in response to weak quarterly results.


Gap stock rose 2.9 percent, to $33.87, after the company reported fourth-quarter earnings that beat expectations and raised its dividend by 20 percent. Salesforce.com posted sales that beat forecasts, driving its stock up 7.6 percent, to $182.


Chesapeake Energy shares fell 2.4 percent, to $19.67, after the Securities and Exchange Commission escalated its investigation of the company and its chief executive, Aubrey McClendon, over a perk that granted him a share in each of the natural gas producer’s wells.


The benchmark 10-year Treasury note rose 10/32, to 101 13/32, and its yield fell to 1.85 percent from 1.88 percent late on Thursday.


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DealBook: Paulson Opposes MetroPCS Merger With T-Mobile

7:59 p.m. | Updated

The investment firm Paulson & Company, the largest shareholder in MetroPCS Communications, announced on Thursday that it would oppose a planned merger with T-Mobile, saying the deal would saddle the new company with too much debt.

“We believe MetroPCS is worth more as a stand-alone company,” the firm, founded by the billionaire hedge fund manager John Paulson, said in a statement. The firm has a 9.9 percent stake in MetroPCS.

Last October, the two companies announced a complex transaction, under which MetroPCS would conduct a 1-for-2 reverse stock split and pay out $1.5 billion in cash to its existing shareholders. The new company would then issue new stock worth about 74 percent to T-Mobile’s parent, Deutsche Telekom, leaving existing MetroPCS investors with a 26 percent stake.

P. Schoenfeld Asset Management, another large shareholder with a 1.6 percent stake in MetroPCS, announced earlier this month that it was leading a proxy battle opposing the merger.

The deal has not been viewed favorably by the markets, and MetroPCS’s stock is down about 32 percent since before the deal was announced.

In a letter to the MetroPCS and Deutsche Telekom boards on Thursday, Mr. Paulson outlined several issues he had with the merger, including that T-Mobile’s performance has been “poor.”

He did conclude in his letter, however, that he would support a revamped deal that reduces the new company’s debt by $6.6 billion and lower its interest rate to 4.2 percent.

“Indeed, Paulson believes this lower debt and lower interest rate will result in a significantly improved multiple for MetroPCS/T-Mobile, increasing the economic return not only to MetroPCS shareholders, but also to 74% owner Deutsche Telekom,” he wrote.

The company says it plans to continue to pursue the merger.

“The MetroPCS board of directors believes that the proposed combination with T-Mobile is in the best interests of MetroPCS and all MetroPCS stockholders and continues to recommend that MetroPCS stockholders vote in favor of the proposed combination,” a spokeswoman said in a statement.

Deutsche Telekom also reiterated that it remained committed to the merger.

“This combination will substantially benefit the shareholders and customers of both companies by creating a new company that will be the leading wireless value carrier with expanded scale, spectrum and financial resources to compete across the entire U.S. market,” the company said in a statement.

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BP Actions Before Gulf Spill Were ‘Beyond Imprudent,’ Expert Witness Says





NEW ORLEANS — The practices of the oil giant BP came under sharp attack on Wednesday in a courtroom here by an expert witness who said its negligence caused the 2010 explosion aboard a Gulf of Mexico drilling rig that killed 11 workers and spewed millions of barrels of oil.




A full day of testimony in the third day of a trial against BP was dominated by the witness, Alan R. Huffman, a petroleum geophysicist who was testifying for the government and private plaintiffs. Mr. Huffman accused BP of submitting misleading and selective data to federal regulators while drilling the Macondo well and of playing “fast and loose” with a safety test intended to measure the stability of the offshore well.


Mr. Huffman, who has worked for several major oil companies, also said BP had been irresponsible to continue drilling below 18,000 feet when the company should have known that the well was unstable. “This was beyond imprudent,” he said. “It was unsafe and dangerous.”


BP’s share of responsibility is a principal focus of the trial, and is also central to a settlement proposal offered by the Justice Department and five gulf states that are demanding that BP pay $16 billion in spill-related penalties and fines. If there is no  settlement, the multiphase trial will determine not only responsibility for the accident but also how many millions of barrels of oil was actually spilled.  


 BP’s propensity to cut corners to save money continued to be a theme of the trial.


 Kevin Lacy, a former BP senior vice president for drilling operations in the gulf who resigned a few months before the spill, told the court in a videotaped deposition that he was told by top management to cut costs throughout 2008 and 2009.


 “I was never given a directive to cut corners or to deliver something not safely,” Mr. Lacy said, “but there was tremendous pressure on costs.”


 Lamar McKay, the former president of BP America and current chief executive in charge of global upstream operations, faced questioning from lawyers from Transocean, the owner of the Deepwater Horizon rig, and Halliburton, the cement provider, who insisted that BP was ultimately responsible for the accident.


 “We agreed that we are part of the responsibility for this tragic accident,” Mr. McKay said on the stand. “We were part of the cause of the accident, yes.”


 Donald E. Godwin, Halliburton’s lawyer, argued that BP had misinterpreted tests showing that the cement that sealed the well was defective. Had the test been interpreted properly, he said, the cement could have been fixed and the accident would not have happened.


 Mr. McKay responded: “We agreed there were misinterpretations. That was one of the causes.” But he added that BP had depended on its contractors.


 Last November, BP agreed to pay $4.5 billion in fines and other penalties and pleaded guilty to 14 criminal charges related to the well blowout. It has also paid out $9 billion in a partial settlement with businesses, individuals and local governments. The company has set aside $42 billion for payouts, largely from selling off oil and gas assets across the world.


 Four BP employees face criminal charges.


 The government and Transocean have already come to a $1 billion civil settlement, and the rig company will pay an additional $400 million criminal penalty. Halliburton has not yet settled.


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BP Executive Says Explosion Was Known Risk





NEW ORLEANS – On the first day of court testimony in a suit over BP’s Gulf oil spill, the company’s top  executive in North American operations at the time of the disaster conceded Tuesday that a well explosion was identified as a risk before the blowout.




 “There was a risk identified for a blowout,” said Lamar McKay, the former president of BP America and now chief executive in charge of global upstream operations. “The blowout was an identified risk, and it was a big risk, yes.”


 Bob Cunningham, a lawyer for private plaintiffs, tried to pin Mr. McKay down on BP’s responsibility for the 2010 disaster that left 11 workers dead and dumped millions of gallons of oil into the gulf. Mr. Cunningham suggested that BP’s cost-cutting and risk-taking culture were at the heart of the explosion and spill. He pressed Mr. McKay on the fact that a BP report on the accident did not cite management failures as a cause for the accident, while contractors were held responsible.


  But Mr. McKay repeatedly responded by saying that while BP was responsible for designing the well, the rig, cement and other contractors shared responsibility for safety on the drilling operations.  


  “It’s a team effort,” he said. “It’s a shared responsibility to manage the safety and risk.”


The Federal District Court trial in New Orleans is bundling suits brought by the Justice Department, state governments, private business and individual claimants against BP and several of its contractors. Decisions on culpability and damages could be a year or more away, but they are likely to have profound impacts on environmental law and determine the viability of BP as a major oil company with global ambitions.


Mr. McKay testified for about an hour at the end of the day, and will continue on Wednesday. He told the court that there were risks drilling both in deep waters and in shallow waters, but that a blowout could be more damaging in deep waters because it is more difficult to control. There was little if anything in Mr. McKay’s comments that diverged from what BP executives have said in the past.


After the April 2010 spill, internal BP documents showed that in March, after several weeks of problems on the rig, BP was struggling with a loss of “well control.” And for months earlier, it was concerned about the well casing and the blowout preventer, which are considered critical pieces in the chain of events that led to the disaster on the rig.


On June 22, 2009, for example, BP engineers expressed concerns that the metal casing the company wanted to use might collapse under high pressure.


“This would certainly be a worst-case scenario,” Mark E. Hafle, a senior drilling engineer at BP, warned in an internal report. “However, I have seen it happen so know it can occur.”


  At times on Tuesday, Mr. McKay shifted and appeared uncomfortable on the witness stand. He acknowledged that he had never read a textbook on safety system engineering before or after the accident or a safety report written by a BP consultant, who had testified earlier in the day.


   Mr. McKay was the second witness to appear in a multiphase trial that will find who was responsible for the accident, whether they were grossly negligent, and how much oil was spilled. He followed Robert Bea, a professor emeritus of engineering at the University of California, Berkeley, and former safety systems consultant for BP, who largely blamed the British company’s culture for the accident.


   “It’s a culture of every dollar counts,” Mr. Bea said. “It’s a classic failure of management and leadership.” 


  Under the Clean Water Act, fines against BP could range from $1,100 for every barrel spilled through simple negligence to as much as $4,300 a barrel if the company were found to have been grossly negligent. The federal government has estimated that about 4 million barrels of oil spilled in the accident, meaning liabilities of as much as $5.4 billion to $21 billion. BP has claimed that 3.1 million barrels should be the uppermost spill limit. 


This article has been revised to reflect the following correction:

Correction: February 26, 2013

An earlier version of this article misstated Lamar McKay’s title when he headed BP America. He was president, not chief executive.



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Johnson & Johnson Told to Pay $3.35 Million in Vaginal Mesh Case





A jury said on Monday that Johnson & Johnson should pay a South Dakota woman $3.35 million for failing to warn her doctor adequately of the potential dangers of a vaginal mesh implant made by the company’s Ethicon subsidiary, and for misrepresenting the product in brochures.




It was the first verdict among some 1,800 vaginal mesh cases pending in New Jersey against Ethicon and Johnson & Johnson, and it could affect thousands of lawsuits against other manufacturers of similar products.


The lawsuit, in state Superior Court in Atlantic City, was brought by Linda Gross, 47, of Watertown, S.D., in November 2008. It asserted that the Gynecare Prolift vaginal mesh was not safe and that J.& J. and Ethicon were liable, among other things, for “their defective design, manufacture, warnings and instructions.”


The Ethicon product, before being taken off the American market last year, was used to treat pelvic organ collapse, a condition for which the plaintiff, a nurse, was treated in November 2008. That condition occurs when tissue that holds the pelvic organs in place is weak or stretched and bulges into the vagina.


Ms. Gross filed her lawsuit after having an operation in 2006 to install a Gynecare Prolift for pelvic prolapse. Her suit said the operation led to a variety of problems, including mesh erosion, scar tissue, inflammation and “neurologic compromise.”


The suit said she had to seek medical treatment and had 18 operations to repair the damage caused by the mesh.


Ben Anderson, a member of the trial team for the plaintiff, called the jury verdict “a strong statement to Johnson & Johnson and Ethicon that they cannot put profits before women’s safety.”


The verdict, by a panel of six women and three men, followed a six-week trial before Judge Carol Higbee. After the verdict was delivered, the judge ruled that she would allow arguments on punitive damages, beginning on Tuesday.


Sheri Woodruff, a spokeswoman for Ethicon, said, “While we are always concerned when a patient experiences medical conditions like those suffered by the plaintiff, all surgeries for pelvic organ prolapse present risks of complications.”


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Barnes & Noble Weighs Its Nook Losses


Elise Amendola/Associated Press


Barnes & Noble has committed heavily to making and selling its own e-readers, and despite an upswing in tablet sales over the Christmas season, the Nook was not a beneficiary.







Even for a company with a lot of bad news lately, the bulletin from Barnes & Noble this month had an ominous feel.




Barnes & Noble, the nation’s largest book chain, warned that when it reports fiscal 2013 third-quarter results on Thursday, losses in its Nook Media division — which includes sales of e-books and devices — will be greater than the year before and that the unit’s revenue for all of fiscal 2013 would be far below projections it gave of $3 billion.


The problem was not so much the extent of the losses, but what the losses might signal: that the digital approach that Barnes & Nobles has been heavily investing in as its future for the last several years has essentially run its course.


A person familiar with Barnes & Nobles’s strategy acknowledged that this quarter, which includes holiday sales, has caused executives to realize the company must move away from its program to engineer and build its own devices and focus more on licensing its content to other device makers.


“They are not completely getting out of the hardware business, but they are going to lean a lot more on the comprehensive digital catalog of content,” said this person, who asked not to be identified discussing corporate strategy.


On Thursday, the person said, the company will emphasize its commitment to intensify partnerships with other tablet producers like Microsoft and Samsung to make deals for content that it controls.


If Barnes & Noble does indeed pull back from building tablets, it would be a 180-degree shift for a company that as late as last year was promoting the Nook as its future. “Had we not launched devices and spent the money we invested in the Nook, investors and analysts would have said, ’Barnes & Noble is crazy, and they’re going to go away,’ ” William Lynch, the company’s chief executive, said in an interview last January.


Since 2009, when Barnes & Noble first decided to invest in building the device, its financial commitment to the division has been substantial. (The company does not disclose exact figures.) At the beginning of 2012, that bet seemed to be paying off and the digital future seemed hopeful.


In May, Microsoft decided to give a cash infusion to the product by pledging more than $600 million to Nook Media. In December, the British textbook publisher Pearson bought a 5 percent stake in the unit for nearly $90 million.


Going into the 2012 Christmas season, the Nook HD, Barnes & Noble’s entrant into the 7-inch and 9-inch tablet market, was winning rave reviews from technology critics who praised its high-quality screen. Editors at CNET called it “a fantastic tablet value” and David Pogue in The New York Times told readers choosing between the Nook HD and Kindle Fire that the Nook “is the one to get.”


But while tablet sales exploded over the Christmas season, Barnes & Noble was not a beneficiary. Buyers preferred Apple devices by a long mile but then went on to buy Samsung, Amazon and Google products before those of Barnes & Noble, according to market analysis by Forrester Research.


“In many ways it is a great product,” Sarah Rotman Epps, a senior analyst at Forrester, said of the Nook tablet. “It was a failure of brand, not product.


“The Barnes & Noble brand is just very small,” she added. “It has done a great job at engaging its existing customers but failed to expand their footprint beyond that.”


Others pointed out that even if the Nook itself was a nice device, its offerings were not as rich as that of its rivals. Shaw Wu, a senior analyst at Sterne Agee, a midsize investment bank in San Francisco, said, “It is a very tough space. It is highly competitive, and extras like the depth of apps are very important. But it requires funding and a lot of attention, and Barnes & Noble is competing against companies like Apple and Google, which literally have unlimited resources.”


Horace Dediu, an independent analyst based in Finland who focuses on the mobile industry, said that the difference in quality among the products was so small as to be increasingly irrelevant.


“We’ve moved beyond a game of specs,” he said. “Now it is about your business model, about distribution and economics of scale.”


He said that while the cellphone business used to have numerous competitors, it now has only two companies that are really profitable: Apple and Samsung. He said he expected a similar consolidation in the tablet market, with companies like Barnes & Noble “maybe falling off the map.”


There is no immediate danger to the book retailer, which has some 677 stores nationwide. The company has said it plans to close about 15 unprofitable stores a year and replace them at a much slower rate. It also still holds roughly one quarter of the digital sales of books and more of magazines.


Still, the threat is large enough that Barnes & Noble executives are working hard to determine a strategy that focuses on core strengths like content distribution. Its content is its “crown jewel,” said the person familiar with the company’s strategy, “and where the profitable income stream lies.”


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Major Banks Aid in Payday Loans Banned by States


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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Alcatel-Lucent Names Chief to Lead a Major Downsizing


BERLIN — Alcatel-Lucent, the struggling French telecommunications equipment maker, on Friday hired a former Vodafone and France Télécom executive, Michel Combes, to lead the company through what might be a major downsizing.


Mr. Combes, 51, will take over for Ben Verwaayen, who had failed in four years to bring the equipment maker, created by the 2006 merger of Alcatel of France and Lucent Technologies of New Jersey, to sustained profit.


Mr. Combes left Vodafone last summer after agreeing to take over as chief executive of SFR, a French mobile operator owned by Vivendi. But he withdrew from the job after the sudden departure of Jean-Bernard Lévy as Vivendi’s chief executive.


In brief remarks to senior executives this morning in Paris, Mr. Combes said he planned to conduct a “listening tour” of employees, shareholders and other stakeholders before formulating a strategy for Alcatel-Lucent, which lost 1.4 billion euros ($1.9 billion) in 2012.


The company is in the midst of cutting 7 percent of its global work force, 5,500 of 76,000 jobs, by the end of this year.


In a statement, Mr. Combes said he would work to return Alcatel-Lucent to lasting profitability, something that has eluded it since the trans-Atlantic merger.


“This is a company I know well,” he said in a statement, “and I look forward to succeeding Ben, working with the key international customers and driving the business into sustained profitability for its customers, employees and shareholders.”


Alcatel-Lucent’s shares fell 1.8 percent, to 1.12 euros, in Paris trading after the announcement. Alexander Peterc, an analyst at Exane BNP Paribas in London, said investors had hoped for an executive with more of a track record as a cost-cutter. He said that Mr. Combes should quickly identify which businesses were for sale.


The company has indicated that its optical submarine cable business and its enterprise business of selling equipment to large companies and organizations are on the block, Mr. Peterc said.


“Alcatel-Lucent is in a crisis situation, and even just identifying which businesses it intends to sell would be a step forward that could save thousands of jobs,” Mr. Peterc said. “They have tried for six years since the merger and have spent 4 billion euros on restructuring to turn this company around, and it hasn’t worked yet.”


Mr. Verwaayen, the former chief of the British telecom operator BT, integrated the Alcatel and Lucent product lines and organizations under a unified brand. When he announced on Feb. 7 that he would step down, he said in a call with analysts that the company was reviewing its entire business portfolio with an eye to possible asset sales.


In December, the company secured 1.62 billion euros in emergency financing from Credit Suisse and Goldman Sachs to buy more time. As a condition of the loans, the company pledged a percentage of revenue derived from future asset sales.


Martin Nilsson, an analyst at Handelsbanken in Stockholm, said Mr. Combes would most likely be forced to take major steps to expedite the resizing of Alcatel-Lucent, including selling some businesses. Only 12 percent of the company’s work force, roughly 9,000 people, is in France. The rest are spread around the world, mostly in the United States, China, India, the Netherlands, Japan and South Korea.


“I think irrespective of the C.E.O. they had chosen, this is the main challenge for Alcatel-Lucent at this time,” Mr. Nilsson said. “It has been seemingly very difficult for this company to reach sustained profitability.”


In another potential signal that Alcatel-Lucent may be entering a phase of greater reorganization, the company announced that it had appointed Jean C. Monty, the former president and chief executive of Nortel Networks and Bell Canada, vice chairman of the board, a new position.


Philippe Camus, the Alcatel-Lucent chairman, said in a statement that Mr. Monty would be working closely with Mr. Combes to sort out the company’s future.


“We are fortunate to have such an experienced colleague to support Michel Combes in his new role,” Mr. Camus said. “I’m looking forward to working more closely with Jean, and I’m convinced Alcatel-Lucent will benefit from his incredible knowledge of our business.”


Mr. Nilsson said that Alcatel-Lucent’s turnaround would not be easy. Selling money-losing businesses and cutting research and development spending to increase profit will decrease Alcatel-Lucent’s base of sales and could limit its future growth potential by slowing the development of new products.


“It is very easy for tech companies to get into a downward spiral,” Mr. Nilsson said.


Alcatel-Lucent has declined to say which businesses it might sell. In 2012, sales fell more than 20 percent in its optical networking business and 17 percent in wireless networking. It blamed the lower sales on the rapid transition by United States operators to faster network gear based on Long Term Evolution technology, which reduced demand for Alcatel-Lucent’s second- and third-generation products.


This article has been revised to reflect the following correction:

Correction: February 22, 2013

An earlier version of this article misspelled, in one reference, the last name of the departing Alcatel-Lucent chief executive. He is Ben Verwaayen, not Verwaaven. It also misspelled the given name of an Exane BNP Paribas analyst. He is Alexander Peterc, not Aleksander. Additionally, an earlier summary for the article misstated the size of Alcatel-Lucent’s loss in 2012. It was 1.4 billion euros, not 1.4 euros.



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U.S. Charges Former Owner and Employees in Peanut Salmonella Case


Federal prosecutors have filed criminal charges against the former owner and several employees of a now-defunct peanut company that was the source of a salmonella outbreak in 2009 that killed nine people and sickened more than 700.


In a 76-count indictment unsealed on Wednesday, investigators charged Stewart Parnell, 58, the former owner of the Peanut Corporation of America, or P.C.A., with criminal fraud and conspiracy, for his role in what they said was a scheme to ship peanut products known to be contaminated to customers in states across the country.


The salmonella outbreak was one of the deadliest in United States history, resulting in recalls of thousands of products made by more than 300 companies, according to Food Safety News.


The law firm representing Mr. Parnell said it was disappointed by the indictment. “As this matter progresses it will become clear that Mr. Parnell never intentionally shipped or intentionally caused to be shipped any tainted food products capable of harming P.C.A.’s customers,” said a statement from the firm, entry Locke Rakes & Moore.


Carl Tobias, a professor at the University of Richmond School of Law, said it was unusual for the federal government to pursue criminal charges in food safety cases, which usually involve negligence. But in this case, federal prosecutors said there was evidence that the defendants knowingly shipped products that had been contaminated or never tested, and misled customers and federal agents about it.


Michael Moore, United States attorney for the Middle District of Georgia, said in a statement that the defendants “cared less about the quality of the food they were providing to the American people and more about the quantity of money they were gathering while disregarding food safety.”


The indictment said that Mr. Parnell and three other people, two of them employees and one of them a broker associated with the company, who is also Mr. Parnell’s brother, misled customers about the quality of the company’s peanut products. A fifth person pleaded guilty in a separate filing connected to the case.


When laboratory testing revealed the presence of salmonella in peanut products from a plant in Blakely, Ga., the indicted people did not notify customers of the results, according to the indictment.


The indictment also described a scheme to fabricate so-called certificates of analysis that accompanied shipments to summarize for customers the results of tests on the products. On several occasions, the indictment contended, employees stated that shipments were safe, when in fact they were contaminated or had not been tested at all.


The company had gross sales totaling about $30 million in 2008, according to the indictment. It filed for bankruptcy in 2009.


The indictment quoted from what prosecutors said were e-mails from the defendants. When an employee said in an e-mail in 2007 that containers of peanut meal were covered in dust and rat feces, Mr. Parnell’s response was, “Clean em’ all up and ship them.”


In another e-mail in 2008, Mr. Parnell scolded employees for wasting peanuts, saying, “These are not peanuts you are throwing away every day, it is money, it is money,” according to the indictment.


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Sony Unveils PlayStation 4, Aiming for Return to Glory





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




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


The first new PlayStation in seven years was touted by Sony as being like a “supercharged PC.” It has a souped-up eight-core processor to juggle more complex tasks simultaneously, enhanced graphics, the ability to play games even as they are being downloaded, and a new controller designed in tandem with a “stereo camera” that can sense the depth of the environment in front of it.All of that should make for more compelling play for the hard-core gamers at the heart of the PlayStation market. The blood in “Killzone: Shadow Fall,” shown to an audience of 1,200 at the Hammerstein Ballroom in New York, looked chillingly real.


The device, whose price was not immediately announced, will go on sale before the end of the year.


With PlayStation 4, serious gaming is about to become much more social. A player can broadcast his gameplay in real time, and his friend can peek into his game and hop in to help. Also, they will now be able to upload recordings of themselves playing and send them to their hardcore friends, who will possibly want to watch when they are not playing themselves.


The new features, however, cannot hide the fact that PlayStation 4 is still a console, a way of playing games on compact discs that was cool when cellphones were the size of toasters and browsers were people in libraries. It was a couple of lifetimes ago, or so it seems.


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


“Today marks a moment of truth and a bold step forward for PlayStation,” Andrew House, chief executive of Sony Computer Entertainment, told the crowd. He said the new device “represents a significant shift of thinking of PlayStation as merely a box or console to thinking as a leading authority on play.”Fine words, but the new PlayStation will have an uphill battle. Sales of consoles from all makers peaked in 2008, when about 55 million units were sold according to the research firm I.D.C. By last year, that was down to 34 million.


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


“From peak to peak, we’ll be down about 10 million,” he said. “There was attrition to alternative gaming platforms like tablets, but the trough was exacerbated by the 2008-2009 recession. It did not permit as many people to buy who under normal economic conditions would have bought a console.”


That was reflected in Sony’s miserable financial results. The company has lost money for the last four years, hampered not only by slower console sales but also by a range of unexciting electronic products, a strong yen and the 2011 tsunami in Japan. Analysts have made dire comments about the one-time powerhouse’s viability. But Sony seems to have bottomed out, helped by a yen that has now weakened. Sony executives said earlier this month that they expected a profit in 2013.


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


Sony has teamed up with Gaikai, the online gaming company it bought last year, to store PlayStation content in the cloud. PlayStation 4 games can be streamed to the PlayStation Vita, Sony’s portable gaming device, among other features.


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


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


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


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


Sony shares, which have risen by nearly a third this year, were little changed Wednesday before the event.


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Brazen Jewel Robbery at Brussels Airport Nets $50 Million in Diamonds





BRUSSELS — They arrived at Brussels Airport armed with automatic weapons and dressed in police uniforms aboard two vehicles equipped with blue police lights. But their most important weapon was information: the eight hooded gangsters who on Monday evening seized diamonds worth tens of millions of dollars from a passenger plane preparing to depart for Switzerland knew exactly when to strike — just 18 minutes before takeoff.




Forcing their way through the airport’s perimeter fence, the thieves raced, police lights flashing, to Flight LX789, which had just been loaded with diamonds from a Brinks armored van from Antwerp, Belgium, and was getting ready for an 8:05 p.m. departure for Zurich.


“There is a gap of only a few minutes” between the loading of valuable cargo and the moment the plane starts to move, said Caroline De Wolf, a spokeswoman for the Antwerp World Diamond Centre, an industry body that promotes the diamond business in Belgium. “The people who did this knew there was going to be this gap and when.”


They also knew they had to move swiftly in a secure airport zone swarming with police officers and security guards. Waving guns that the Brussels prosecutors office described as “like Kalashnikovs,” they calmly ordered ground staff workers and the pilot, who was outside the plane making a final inspection, to back off and began unloading scores of gem-filled packets from the cargo hold. Without firing a shot, they then sped away into the night with a booty that the Antwerp Diamond Centre said was worth around $50 million but which some Belgian news media reported as worth much more.


The thieves’ only error: they got away with 120 packets of diamonds but left some gems behind in their rush.


“They were very, very professional,” said the Brussels prosecutor Ine Van Wymersch, who said the whole operation lasted barely five minutes. The police, she added, are now examining whether the thieves had inside information. “This is an obvious possibility,” she said.


Passengers, already on board the plane awaiting takeoff, had no idea anything was amiss until they were told to disembark as their Zurich-bound flight, operated by Helvetic Airways, had been canceled.


“I am certain this was an inside job,” said Doron Levy, an expert in airport security at a French risk management company, Ofek. The theft, he added, was “incredibly audacious and well organized,” and beyond the means of all but the most experienced and strong-nerved criminals. “In big jobs like this we are often surprised by the level of preparation and information: they know so much they probably know the employees by name.”


He said the audacity of the crime recalled in some ways the so-called Pink Panther robberies, a long series of brazen raids on high-end jewelers in Geneva, London and elsewhere blamed on criminal gangs from the Balkans. But he said the military precision of Monday’s diamond robbery and the targeting of an airport suggested a far higher level of organization than the cruder Pink Panther operations.


The police have yet to make any arrests related to the airport robbery, said the prosecutor, but have found a burned-out white van that they believe may have been used by the robbers. It was found near the airport late on Monday.


Scrambling to crack a crime that has delivered an embarrassing blow to the reputation of Brussels Airport and Antwerp’s diamond industry, the Belgian police are now looking into possible links with earlier robberies at the same airport. The airport, which handles nearly daily deliveries of diamonds to and from Antwerp, the world’s leading diamond trading center, has been targeted on three previous occasions since the mid-1990s by thieves using similar methods to seize gems and other valuables. Most of the culprits in those robberies have been caught.


Jan Van Der Cruysse, a spokesman for the airport, insisted that security was entirely up to international standards, but “what we face is organized crime with methods and means not addressed in aviation security measures as we know them today.” Precautions intended to combat would-be bombers and other threats, he added, could not prevent commando-style raids by heavily armed criminals. “This involves much more than an aviation security problem.”


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DealBook: Reader's Digest Files for Bankruptcy, Again

Executives at Reader’s Digest must be hoping that the magazine’s second trip to bankruptcy court in under four years will be its last.

The magazine’s parent, RDA Holding, filed for Chapter 11 protection late on Sunday in another effort to cut down the debt that has plagued the pocket-size publication for years. The company is hoping to convert about $465 million of its debt into equity held by its creditors.

In a court filing, Reader’s Digest said it held about $1.1 billion in assets and just under $1.2 billion in debt. It has provisionally lined up about $105 million in financing to keep it afloat during the Chapter 11 case.

This week’s filing is the latest effort by the 91-year-old publisher, whose magazine once resided on many American coffee tables, to fix itself in a difficult economic environment.

“After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products,” Robert E. Guth, the company’s chief executive, said in a statement.

Reader’s Digest last filed for bankruptcy in 2009, emerging a year later under the control of lenders like JPMorgan Chase.

That reorganization substantially cut the publisher’s debt, and afterward the company worked to further shrink its footprint. It jettisoned nonessential publications in a series of deals, including the $180 million sale of Allrecipes.com and the $4.3 million sale of Every Day With Rachael Ray, both to the Meredith Corporation.

Most of the money from those transactions went to pay down a still significant debt burden. But the company remained pressured by what it described in a court filing as steep declines that still bedevil the media industry. Last year, the publisher began negotiating with its lenders, including Wells Fargo, about amending some of its debt obligations. That process eventually led to a “pre-negotiated agreement” with creditors, which will be put into effect by the bankruptcy filing.

This time, Reader’s Digest is hoping to spend even less time in court. Mr. Guth said in a court filing that the publisher aims to emerge from bankruptcy protection in about four months.

The company’s biggest unsecured creditors include firms represented by Luxor Capital. The Federal Trade Commission also contends that it is owed $8.8 million in a settlement claim.

Reader’s Digest is being advised by Evercore Partners and the law firm Weil, Gotshal & Manges.

Reader's Digest bankruptcy petition (2013) by

Declaration by Reader's Digest Chief Executive by

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Rem Vyakhirev, Former Chief of Gazprom, Dies at 78


MOSCOW — Rem I. Vyakhirev, who as chief executive of the huge Russian energy company Gazprom during the 1990s resisted efforts by reformers to break up and privatize it, only to end his tenure a billionaire owning valuable pieces of the company himself, died on Feb. 11. He was 78.


His death was confirmed by a Gazprom spokesman, who did not provide the cause or place of death.


Early in the post-Soviet period, Mr. Vyakhirev seized on the possibilities of exploiting the sheer power and scale of the Russian natural gas industry — both for the government and for private enrichment.


His career spanned the transformation of what had been the Soviet ministry of gas into the world’s largest natural gas company. By the time he left Gazprom, in 2001, forced out in a din of criticism over missing assets, Forbes magazine estimated his net worth at $1.5 billion.


All along, though, Mr. Vyakhirev, reflecting a strange cognitive dissonance that characterized his career, espoused the benefits of state ownership of natural gas fields and pipelines. Gazprom, which is controlled by the Russian government but is 50 percent owned by private investors, remained whole while the Russian oil industry was split up and sold piecemeal. The company supplies about a quarter of all gas consumed in Europe today.


“The gas industry should be in one pair of hands, in state hands,” Mr. Vyakhirev said in September in an interview with the Russian edition of Forbes. “There’s all this talk about gas being an addiction, how to get off the gas needle. That’s ridiculous. Gas is a wet nurse, not a needle.”


Rem Ivanovich Vyakhirev was born on Aug. 23, 1934, in a village in the Samara region of southern Russia. His given name is an acronym evoking socialist progress: Revolution, Engels and Marx.


By the late 1980s, he had risen to deputy minister of gas in the Soviet Union. He assumed control of Gazprom in 1992, when his patron, the former minister of gas, Viktor S. Chernomyrdon, was appointed prime minister under President Boris N. Yeltsin.


Mr. Vyakhirev and a tight group of associates held sway over Gazprom’s assets, including whole towns in Siberia. The company became an island of the old Soviet system in the new Russia, known as the state within the state, a paternalistic monopoly with tens of thousands of coddled employees.


The company’s staggering wealth and size made Mr. Vyakhirev one of Russia’s most powerful men. He was able to shrug off efforts by the tax ministry to collect billions in arrears from the company in the mid-1990s. He also aided the state by informally ladling out funds from the corporate budget.


Yevgeny Yasin, the minister of economy at the time, recalled Mr. Vyakhirev’s eagerness to help the government on such projects as rebuilding a cathedral in Moscow.


“He always helped,” Mr. Yasin said, as quoted by Public Post, a news Web site. “Gazprom was a second budget, in fact an ‘extra pocket’ for the government, to be used during especially difficult situations.”


All the while, beginning with a quiet deal soon after the company’s founding that allowed company executives to buy up to 30 percent of Gazprom shares at auctions they controlled, pieces of Gazprom slipped away to nonstate entities.


Public documents and financial records later showed that some assets went to Mr. Vyakhirev and members of his family, a sign of the rough and loose ways of early Russian capitalism. One deal, for example, transferred about $185 million worth of gas fields to Sibneftegaz, a subsidiary partly owned by Mr. Vyakhirev’s relatives.


As pressure mounted to oust Mr. Vyakhirev, Boris Fyodorov, a former minister of finance, disclosed that tens of billions of dollars worth of gas sales from Russia to former Soviet countries like Ukraine went through Itera, a trading company based in Jacksonville, Fla., and partly owned by Gazprom managers.


President Vladimir V. Putin, in consolidating political control over Russia early in his first term, ousted Mr. Vyakhirev in 2001 by having government appointees on the board cancel his contract. Mr. Vyakhirev stayed on as chairman for a year. The new director, Aleksey B. Miller, then set about unraveling the old management’s insider deals.


Gazprom’s stock rallied for a time before the global recession, but has been in a swoon for years. The company is losing market share in Europe because of price pressure from the gas industry in the United States.


Mr. Vyakhirev’s survivors include a son, Yuri, and a daughter, Tatyana Vyakhireva.


In the Forbes interview last year, Mr. Vyakhirev said he had taken up hobby farming in retirement. “I never wanted to be the head of a company,” he said. “But why refuse if the entire business is in your hands? If you give it to somebody, they would either drink it away or lose it.”


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


Chang W. Lee/The New York Times


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







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




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


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


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


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


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


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


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


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


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


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


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


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


Leaving the Village


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Incomes Flat in Recovery, but Not for the 1%


WASHINGTON — Incomes rose more than 11 percent for the top 1 percent of earners during the economic recovery, but barely at all for everybody else, according to new data.


The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings rose by just 0.4 percent.


Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that “the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.”


The disparity between top earners and everybody else can be attributed, in part, to differences in how the two groups make their money. The wealthy have benefited from a four-year boom in the stock market, while high rates of unemployment have continued to hold down the income of wage earners.


“We have in the middle basically three decades of problems compounded by high unemployment,” said Lawrence Mishel of the Economic Policy Institute, a left-of-center research group in Washington. “That high unemployment we know depresses wage growth throughout the wage scale, but more so for the bottom than the middle and the middle than the top.”


In his analysis, Mr. Saez said he saw no reason that the trend would reverse for 2012, which has not yet been analyzed. For that year, the “top 1 percent income will likely surge, due to booming stock prices, as well as retiming of income to avoid the higher 2013 top tax rates,” Mr. Saez wrote, referring to income tax increases for the wealthy that were passed by Congress in January. The incomes of the other “99 percent will likely grow much more modestly,” he said.


Excluding earnings from investment gains, the top 10 percent of earners took 46.5 percent of all income in 2011, the highest proportion since 1917, Mr. Saez said, citing a large body of work on earnings distribution over the last century that he has produced with the economist Thomas Piketty of the Paris School of Economics.


Concern for the declining wages of working Americans and persistent high levels of inequality featured heavily in President Obama’s State of the Union address this week. He proposed raising the federal minimum wage to $9 from $7.25 as one way to ameliorate the trend, a proposal that might lift the earnings of 15 million low-income workers by the end of 2015.


“Let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty,” Mr. Obama said in his address to Congress.


Mr. Obama’s economic advisers say that he has been animated by the country’s yawning levels of inequality, and the administration has put forward several proposals to address the gap. Those include higher taxes on a small group of the wealthiest families and an expansion of aid to lower- and middle-income families through programs like the Affordable Care Act.


The data analyzed by Mr. Piketty and Mr. Saez shows that income inequality — as measured by the proportion of income taken by the top 1 percent of earners — reached a modern high just before the recession hit in 2009. The financial crisis and its aftermath hit wealthy families hard. But since then, their earnings have snapped back, if not to their 2007 peak.


That is not true for average working families. After accounting for inflation, median family income has declined over the last two years. In 2011, it stagnated for the poorest and dropped for those in the middle of the income distribution, census data show. Median household income, which was $50,054 in 2011, is about 9 percent lower than it was in 1999, after accounting for inflation.


Measures of inequality differ depending on whether they are measured after or before taxes, and whether or not they include government transfers like Social Security payments, food stamps and other credits.


Research led by the Cornell economist Richard V. Burkhauser, for instance, sought to measure the economic health of middle-class households including income, taxes, transfer programs and benefits like health insurance. It found that from 1979 to 2007, median income grew by about 18.2 percent over all rather than by 3.2 percent counting income alone.


In an interview, Mr. Burkhauser said his numbers measured “how are the resources that person has to live on changing over time,” whereas Mr. Piketty and Mr. Saez’s numbers measure “how are different people being rewarded in the marketplace.”


“That’s a fair question to ask, but it’s a very different question to ask than, ‘What resources do Americans have?’ ” Mr. Burkhauser said. Notably, many of the Obama administration’s progressive policies have been aimed at blunting the effects of income inequality, rather than tackling income inequality itself.


Mr. Saez has advocated much more aggressive policies aimed at income inequality. “Falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented,” Mr. Saez said in his analysis.


The recent policy changes, including tax increases and financial regulatory reform, he wrote, “are not negligible but they are modest relative to the policy changes that took place coming out of the Great Depression. Therefore, it seems unlikely that U.S. income concentration will fall much in the coming years.”


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Service Cuts May Arise With Merger of Airlines


Donna McWilliam/Getty Images


Thomas W. Horton, chief of American Airlines, left, with Doug Parker, chief executive of US Airways, at a news conference.







And then there were three.




The airline industry took a decisive step toward greater concentration on Thursday with the announcement that American Airlines and US Airways had agreed to merge, forming the nation’s biggest airline. The merged airline, to be called American, leaves just three major carriers — Delta Air Lines and United Airlines too — able to offer extensive domestic and international service, a sharp contraction over the last decade.


But while airline executives argue that mergers are good for passengers because they bring more service to more destinations, some economists and consumer advocates warn that all this consolidation comes at a price for travelers.


With fewer carriers, passengers have fewer options; fares and fees are now more likely to go up, particularly for flights between midsize cities. And more cities, especially smaller ones, can expect to see further reductions in service.


“It’s much easier to have tacit collusion with just three airlines,” said George Hoffer, a transportation economist at the University of Richmond. “It’s not illegal. But it’s like having a few big people in a small boat. Anyone’s decisions tie you all together.”


That helps explain why fees had become so uniform within the industry in recent years, he said, and why all airlines now charge extra fees beyond ticket prices for things like checking bags, rebooking reservations or even picking seats or boarding early.


Those extra fees now account for a growing share of airline revenue and are a big reason behind the industry’s renewed profitability.


Fares, too, have risen in recent years, according to the latest government statistics. Some of that increase, analysts said, reflects rising oil prices. And while airfares on average are still lower than they were in 1995, once adjusted for inflation, they have been steadily rising since 2008.


But some airports, where the number of carriers has fallen, have had steep increases in fares. Ticket prices between Delta’s hub in Atlanta and Detroit, for instance, rose more than 20 percent from 2007 to 2011, while the number of carriers serving that route fell to two from four, according to a study released last year.


Still, most analysts expect the merger to be cleared by federal antitrust authorities, who have approved seven major mergers in the last decade.


The last time the Justice Department challenged a merger was the proposed combination of United Airlines and US Airways in 2001. That merger was rejected on the ground it would reduce choice and possibly lead to higher fares.


Since then, regulators have taken a different view of airline mergers. Instead of looking at any carrier’s overall market share, antitrust authorities now examine whether a merger would decrease competition on specific routes.


The department raised no objections to the merger of Delta and Northwest in 2008. It required United to sell only a handful of takeoff rights at Newark Liberty Airport before allowing its merger with Continental in 2010. And when Southwest bought AirTran, federal regulators found in 2011 that “the merged firm will be able to offer new service routes that neither serves today.”


A decade ago, the Justice Department “would not have stomached mergers the size of Delta-Northwest, United-Continental, or American-US Airways,” said Paul Stephen Dempsey, a professor of global governance in air and space law at McGill University. “Now, having approved the gargantuan Delta and United acquisitions, it cannot equitably deny American the same.”


“Apparently, Washington believes that this is the optimum path to industry health, and that  concentration and collusion is preferable to regulated competition,” he said.


Airline executives say mergers are necessary to reduce financial volatility and restore a measure of stability to a business that lost about $60 billion in the last decade. Instead of stifling competition, the argument goes, bigger airlines with bigger networks provide passengers with more travel options, more destinations and, theoretically, better service.


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DealBook: In First Disclosure, Getco Reports Years of Sagging Profit

One of the most powerful firms in the secretive high-speed trading industry reported on Wednesday that its profit and revenue had been declining steadily since the financial crisis.

Getco, a privately held company, released its financial results for the first time as part of its impending purchase of Knight Capital Group, the trading firm that suffered a debilitating software malfunction last August. Getco, which was founded in Chicago in 1999, won a bidding war for Knight in December, offering a combination of cash and shares that valued Knight at around $1.4 billion.

It was no surprise to analysts that Getco had struggled in the last few years because of withering trading activity in many financial markets, but the magnitude of the decline was striking. The company’s profit in the first nine months of last year was $25 million, down 82 percent from a year earlier, and its trading revenue fell 43 percent, to $414 million, in the same period. That was a much sharper drop than the decline in trading volume on the markets where Getco makes most of its money.

The disclosure did not appear to weigh on the prospects for the Knight deal. Getco said the decline in profit was in large part because of its investment in new business lines, which it projects will begin to pay off this year. Richard Repetto, an analyst at Sandler O’Neill, said that the drop in profit and revenue was sharper than expected, but that “the math on the deal is still pretty safe.”

Knight’s stock, which rose after the deal was announced in December, gained 2 cents, or 0.5 percent, to $3.72 on Wednesday.

Beyond the deal, Getco’s struggles illustrate the larger challenges facing computerized trading companies. While these high-speed firms have come to dominate the trading world, accounting for more than half of all stock trading, they have encountered sliding trading volumes and less extreme short-term swings in the prices of financial assets.

Getco’s overall expenses have fallen in recent years, but the costs of keeping computers close to the big exchanges and maintaining high-speed data streams were more than three times as high in the first nine months of last year as they were in all of 2008. Trading revenue in the first nine months of 2012 was barely a third of what it was in all of 2008.

Getco said in its filing that many competitors were “making decisions about their long-term ability to compete across asset classes and product types,” leading some of them to close or scale back. Knight announced recently that its profit in the fourth quarter of 2012 was $6.5 million, down 84 percent from a year earlier, in part because of costs related to its Aug. 1 programming problem that flooded the market with errant trades, leading to losses of $458 million. Its fourth-quarter revenue fell 16 percent, to $288 million.

Through the merger with Knight, Getco will become a publicly traded company. Together, the firms will become one of the largest players in the trading of American stocks, though they did not discuss their market share in Wednesday’s filing.

A majority of Getco’s revenue comes from trading American stocks, using sophisticated computer algorithms to dart in and out of trading positions and take advantage of small moves in stock prices and the rebates offered by exchanges. The company has been expanding in other markets around the world, but trading volume has declined in many of those markets as well.

Getco is also pushing to expand its business trading on behalf of clients. But it still made 94 percent of its revenue last year from trading with its own money.

The filing was made on Wednesday as part of the process of winning shareholder support for the merger. The deal is subject to the approval of shareholders and regulators, but the companies expect to close it in the second quarter of this year.

Knight was attractive to Getco in part because it has a reliable business buying and selling the shares of small retail investors, who are generally easier to make money trading against than large institutional investors.

The companies’ best hope for future growth appears to be in the changes that financial reform legislation is making to markets in the United States and Europe. Wednesday’s filing said these changes were likely to push more trading of bonds and derivatives onto electronic platforms where Knight and Getco can participate.

In the filing, Getco also said that it was positioned to take advantage of the broader challenges facing the high-speed trading industry and predicted that its earnings would rise sharply this year.

“Getco believes that it stands to benefit from this period of rationalization and consolidation,” the filing said, “as it is positioned to potentially capture a greater share of activity if and when market volumes and volatilities increase.”

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Dow Ends Above 14,000 For Year’s Highest Close


The Dow Jones industrial average rose to its highest close of the year Tuesday, putting it within 1 percent of its record. Stocks gained after two big consumer brands posted impressive quarterly results.


The Dow closed up 47.46 points, or 0.34 percent, to 14,018.70 Tuesday. That is 146 points from its record close of 14,164.53 set in October 2007. The Standard & Poor’s 500-stock index gained 2.42 points, or 0.16 percent, to 1,519.43, also close to its record.


In a day of quiet trading, stocks were driven higher by the beauty products maker Avon and the luxury clothing and accessories company Michael Kors, whose results impressed investors. Consumer spending accounts for 70 percent of economic activity in the United States.


Financial and home-building stocks, led by the Bank of America and the Masco Corporation, which reported some of the day’s biggest gains, also lifted the averages.


The Dow has logged its best January in almost two decades after lawmakers reached a last-minute deal to avoid sweeping tax increases and spending cuts. Investors are also becoming more optimistic that the housing market is recovering and that hiring is picking up.


The Dow has advanced 7 percent this year and the S.& P. 500 is up 6.6 percent.


The 30-member Dow has closed above 14,000 twice this month. Before February, the index closed above that level just nine times in its history. The first time was in July 2007; the rest were in October of that year.


Shares of Avon rose $3.51, or 20 percent, to $20.79 after the company posted a fourth-quarter loss that was not as bad as analysts expected. The company also hopes to save $400 million by slashing costs. Michael Kors rose $5, or 9 percent, to $62 after reporting earnings that beat analysts’ predictions.


Bank of America was the biggest gainer on the Dow, adding 38 cents, or 3.25 percent, to $12.24. Stocks gaining in the index outnumbered those falling by a ratio of more than four to one.


About 70 percent of companies in the S.& P. 500 have reported earnings for the fourth quarter. Analysts are projecting that earnings will rise 6.4 percent for the period, an improvement from the 2.4 percent growth reported in the third quarter, according to S.& P. Capital IQ.


Investors may have become too optimistic about the outlook for stocks, said Uri Landesman, president of the hedge fund Platinum Partners.


“The market is priced for perfection,” Mr. Landesman said. “The odds of a disappointment are very, very high.”


Mr. Landesman predicts that the S.& P. 500 will climb past its record and rise as high as 1,600 by April before then slumping as low as 1,300 as company earnings start to disappoint investors. The record close for the S.& P. 500 is 1,565, reached in October 2007.


Investors were expected to be watching closely Tuesday night when President Obama delivered his annual State of the Union address. Mr. Obama was expected to focus on the economy, including job creation.


A decline in bond prices since the beginning of the year has also slowed. The Treasury’s 10-year note fell 4/32 to 96 28/32 on Tuesday and the yield rose to 1.98 percent from 1.96 percent late Monday. The yield was 1.71 percent at the beginning of the year.


In other trading Tuesday, the Nasdaq composite index was down 5.51 points, or 0.17 percent, to 3,186.49.


Among other stocks making big moves:


Coca-Cola, the beverage company, fell $1.05, or 2.7 percent, to $37.56 after reporting fourth-quarter revenue that fell short of analysts’ forecasts.


Masco, a home improvement and building product company, rose $2.22, or nearly 13 percent, to $20.01 after reporting earnings that beat analysts’ expectations, helped by strong demand in North America.


Dun & Bradstreet, a provider of credit and business data, fell $6.60, or 7.7 percent, to $78.68 after the company reported a fourth-quarter profit that was below market expectations.


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