Archive for November, 2011|Monthly archive page

Payroll tax cut problem: Paying for it

In Uncategorized on November 30, 2011 at 8:03 pm

Congress faces decisions on a bevy of expiring measures, including the popular payroll tax cut. But it will be hard for lawmakers to agree on how to pay for them.

Congress faces decisions on a bevy of expiring measures, including the popular payroll tax cut. But it will be hard for lawmakers to agree on how to pay for them.

NEW YORK (CNNMoney) — After a year of beating their heads against the wall about reducing deficits, lawmakers in the next few weeks may add to them.

At issue are several expiring provisions of law: a Social Security payroll tax cut; long-term federal unemployment benefits; a “doc fix” to ward off a scheduled cut in Medicare physician pay; and a bevy of temporary business tax breaks.

Whether they’re extended or not, the measures could end up increasing the 2012 deficit. Two possible outcomes:

–Congress lets the payroll tax cut and unemployment benefits expire. Many economists worry economic growth will slow because Americans will spend less. Slower growth means tax revenue falls and demand for safety net programs grows. Deficit goes up.

–Lawmakers extend the payroll tax cut and jobless benefits in conjunction with a one-year doc fix and at least one key business tax break. Cost to federal coffers: About $180 billion. Deficit goes up.

Of course, Congress could choose to offset all or part of the cost. But it won’t be easy.

Obama and Senate Democrats have proposed paying for the payroll tax relief with a surtax on millionaires. Republicans have said that won’t fly.

Many Republicans are also likely to oppose any other tax increase proposals.

Democrats would be open to other ways to pay for the provision in place of the surtax, Sen. Chuck Schumer said on “Meet the Press” on Sunday.

But the question is what exactly?

Bush tax cuts: The real end game

Democrats are said to be considering applying war savings from the drawdown of U.S. military efforts in Iraq and Afghanistan. But many budget experts consider such a pay-for a gimmick since those savings are going to be realized regardless.

As for other spending cuts? The low-hanging fruit has already been plucked or otherwise identified as necessary for deficit reduction. What’s more, after the rounds of spending cuts legislated in the budget showdown this spring and the debt ceiling deal this summer, Democrats won’t be very enthused about yet another round just to keep the debt from getting worse.

“It’s hard to see what the spending cuts would be that would be acceptable to everybody,” said James Horney, vice president of federal fiscal policy at the Center on Budget and Policy Priorities.

Rudolph Penner, a former Congressional Budget Office director, said there may be one possibility for savings: a change in how annual inflation adjustments are calculated for government benefits and tax brackets. Such a change could raise an estimated $217 billion if left in place over a decade, according to the Congressional Budget Office.

And it has gotten some bipartisan support in various quarters.

“That could be put in place for however long it took to pay for all or part of any deficit-increasing measures,” Penner said.

But that policy proposal has drawn a lot of fire from the left, because it would reduce annual cost-of-living increases in Social Security. And given that the bipartisan Congressional debt committee failed to show a united front on debt reduction, there’s no guarantee the larger Congress would lock arms on such a change in the next few weeks.

So that leaves one other option if lawmakers want to pass the payroll tax cut and unemployment benefits. They could deem the extensions to be emergency spending.

That way, the new costs would be exempt from any requirement to pay for them.

Both Horney and Penner said they wouldn’t be surprised if Congress took that route.

Obama, who has proposed not just extending but expanding the payroll tax cut, has said repeatedly he wants the extensions to be paid for. But the White House on Tuesday didn’t explicitly rule out a veto if Congress fails to pay for them. “We don’t know what the endgame is yet,” said spokesman Jay Carney during a press briefing.

And as discordant as it might seem with all the emphasis on debt reduction this year, Horney doesn’t think it would be the worst thing if Congress passes the extensions without paying for them.

The recovery remains fragile, he said, and it’s better that the provisions get extended to boost the economy in the short run.

On the other hand, Penner isn’t so convinced the economy would unravel if Congress doesn’t continue the payroll tax cut or other measures.

“If nothing is done, it would have some negative effect on the economy, but I think that the impact would be very small and certainly not enough to turn our stumbling recovery into a recession,” he said.

But many Americans are likely to notice the difference in their bottom line. If the payroll tax cut is allowed to expire, a person making $35,000 will pay an extra $700 in payroll tax next year and a person making $75,000 will pay another $1,500.

CNN’s Ted Barrett contributed to this report. To top of page

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The startup choice: Get big or get bought

In Uncategorized on November 30, 2011 at 8:03 pm

Sensing hard times ahead, a growing number of tech startups are looking to be acquired.

Sensing hard times ahead, a growing number of tech startups are looking to be acquired.

NEW YORK (CNNMoney) — There’s essentially three options for a tech venture outgrowing its startup days: Get big, get bought or go broke. Sensing hard times ahead, a growing number of entrepreneurs are casting around for suitors and a shot at door #2.

“There are a lot of companies out there right now trying to put themselves on the market,” says Milo founder Jack Abraham, who sold his shopping services site to eBay last year for a reported $75 million. “I get introductions to a lot of founders recently asking for ‘advice’ on the process.”

EBay took down another closely watched startup last week: Hunch, a predictive analytics recommendations engine. Hunch said its entire staff will join eBay (EBAY, Fortune 500) and remain based in New York City.

Industry observers say it’s a smart buy for eBay, which is always looking for better technology for nudging site visitors toward other products they might wish to purchase. But it’s also a good ending for Hunch, which launched in late 2008 and changed directions several times in the years since.

By year two or three, entrepreneurs often start feeling the pressure to get acquired: It’s time to get profitable or get an exit plan. The frothy tech environment is adding fuel to the fire. Thousands of tech companies have taken cash from investors this year alone — and they can’t all survive.

There’s growing mindset among tech founders: “If we’re not going to be number one of this space, we should sell while times are good,” says one entrepreneur, whose own company is struggling to break out in a crowded niche.

Paul Lee, a partner in venture capital firm Lightbank, says that “wacky” valuations are accelerating the trend.

“We’re seeing pre-revenue, pre-product companies get $10 million valuations,” he said. “It’s an incentive to sell if companies aren’t doing well. You need to achieve a lot in order to justify that valuation.”

One of the latest examples of a startup shopping for a deal is location sharing app Gowalla.

Launched in 2009, the Austin-based company went head-to-head with direct rival Foursquare — and lost. Badly trailing Foursquare in user adoption, Gowalla recently shifted directions, recasting itself as a travel guide. It is now in talks with a number of companies — ranging from Groupon to Google (GOOG, Fortune 500) — about selling itself, according to multiple sources familiar with the discussions.

Gowalla did not respond to CNNMoney’s request for comment.

Like a game of musical chairs, timing is everything in takeover talks.

Hunch’s acquisition, for a sale price rumored to be around $80 million, is the kind of deal investors call a base hit. Hunch had raised around $20 million over the years, which means most investors are likely to turn a profit on the deal.

Hunch co-founder Chris Dixon declined to discuss the acquisition, directing all queries to eBay’s PR team. “We’ll be tackling all kinds of interesting challenges as part of eBay,” Dixon wrote in a blog post announcing the deal. “We can’t wait to get started.”

But on the flip side, there’s a growing list of takeover deals that read more like cautionary tales.

Take SimpleGeo, a location technology startup that was once viewed as one of the hottest in the space. It raised more than $8 million last year, taking its total investment to $10 million. Fast forward to its sale price late month: An estimated $3.5 million in an all-stock deal, according to tech blog Uncrunched.

Co-founder Matt Galligan, who left the company two months before it was acquired, defended SimpleGeo post-acquisition on question-and-answer site Quora.

In response to the question “Why did SimpleGeo fail?,” Galligan wrote: “As a standalone company, SimpleGeo may have fallen short of creating a crazy valuable business. But we chose, rather, to capitalize on an already amazing partnership with Urban Airship, team up, and build an even bigger opportunity that would be greater than the sum of its parts.”

One week after the acquisition, SimpleGeo co-founder Joe Stump announced his departure.

For exhibit B, there’s Ning, a “build your own social network” platform that sold in August to Glam Media in a deal reported to be around $200 million, mostly in stock. Sounds great — but Ning had raised around $120 million from investors over the years. It’s a break-even deal, at best.

Ning did not respond to CNNMoney’s request for comment.

The companies with the best takeover prospects, industry veterans say, are those with top-tier developers. Google, Facebook, Twitter and other giants are desperate for those employees and willing to pay lavishly to acquire the startups that have them. The industry calls it “acqhiring.”

“Facebook and Google have really changed the way acquisitions work over the last year and half,” said one entrepreneur who is frequently approached by companies looking for a suitor. “When acquiring these companies, [their approach is] ‘all we really care about is the team.’”

Facebook, in particular, likes to buy startups, kill their products, and deploy their engineers on new projects. Facebooks’s chief technical officer, Bret Taylor, came in the door that way, as did Facebook’s head platform engineer, Carl Sjogreen, and dozens of other executives.

Some founders are perfectly happy with that outcome. Sparkbuy founder Dan Shapiro wrote recently about his decision to sell his six-month-old gadget shopping site to Google.

“Some people are wired for the ‘billion dollars is cool’ kind of risk that folks love to write articles about. I wasn’t,” he wrote. “At least I was in good company, though — my new great-grand-boss, Larry, famously tried to sell Google for $1 million and failed.” To top of page

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Confessions of a con artist

In Uncategorized on November 30, 2011 at 8:03 pm

Confessions of a small biz con artist: Diann Cattani's embezzlement started off as an innocent mistake and then quickly got out of control.

Diann Cattani’s embezzlement started off as an innocent mistake and then quickly got out of control.

NEW YORK (CNNMoney) — My first indiscretion was very accidental.

I had been brought in as a project manager for a boutique human resources firm in Atlanta in the late 80s and early 90s.

It was a startup, so the owners relied on me to take over the company’s business functions. I automated the bookkeeping systems, contracted with all of the vendors and basically did everything that it took to set up the company’s infrastructure. I never established systems with the plan to steal from them, but the fact that I implemented everything made things a lot easier.

A few years later, my family and I were traveling for the holidays, and the travel agent inadvertently charged my personal travel onto my corporate American Express account. I noticed it and planned to reimburse the company as soon as I got back.

That never happened.

Business scam horror stories

My stealing just got worse. I applied more personal expenses to the company, justified false invoices, and created dummy vendors in the system and then wrote checks to myself.

Research shows that for every white-collar crime there are always three elements involved. It’s called the fraud triangle, and it consists of opportunity, pressure and rationalization.

Opportunity was always there for me. I didn’t have a lot of financial pressures, but I definitely crossed over into rationalization. I was living this amazing life — traveling around the world — and I didn’t want to deprive myself.

Over the next three-and-a-half to four years, I stole almost $500,000.

I think that there is just as much fraud and theft going on today, and probably more — but now it’s out of necessity. People are desperate, and it could mean the difference between making a mortgage payment or not.

I speak at conferences across the country and, although I don’t know if there are ways that small business owners can completely prevent fraud, there are certainly some deterrents.

First, honesty and integrity have to be core competencies that are practiced by everyone, especially the owners and senior executives. If employees know that execs are using company funds for personal reasons, it will affect the entire culture.

Also, small business owners have to trust employees, but also verify. Have bank statements sent to your home, and double check everything against source documents like cancelled checks. Protect people from themselves.

Most importantly, always be aware and on guard. When I turned myself in, my bosses were completely surprised; they really had no idea.

Firing horror stories

I was charged with felony mail fraud, and I served 15 months of an 18-month sentence in a Florida prison. When you get to jail, you think that’s the end of the world. But once you get out, you realize that was the easy part.

As a felon, I can’t hold a professional license or even sign a lease on an apartment. And the hardest part is finding a job.

The company that I was most recently working for got bought out, and I just received my two-week notice. It’s scary, but I’m actually thinking about going into business for myself. It’s really my best option at this point.

So am I scared of being stolen from? Absolutely not. I lived that life, and I know exactly what to look for. To top of page

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World markets get lift from Fed liquidity plan

In Uncategorized on November 30, 2011 at 8:03 pm

Click chart for premarket data

NEW YORK (CNNMoney) — U.S. stocks were poised to rally Wednesday, after the Fed said that it will act with other central banks to boost liquidity and support the global economy. Global markets surged on the news as well.

Dow Jones industrial average (INDU), SP 500 (SPX) and Nasdaq (COMP) futures rose about 2% higher. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.

The Federal Reserve, along with five other central banks including the European Central Bank and the Central Bank of Canada, announced a joint action to lower interest rates on dollar liquidity swaps — to make it cheaper for banks around the world to trade in U.S. dollars.

The move is an attempt to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.

European markets also posted sharp gains in the wake of the news. Germany’s DAX (DAX) rose more than 4%, while England’s FTSE 100 (UKX) and France’s CAC 40 (CAC40) were up nearly 3%.

World markets had already been modestly higher prior to the announcement, as reports said eurozone finance ministers have approved an increase to the region’s bailout fund, and may potentially receive help from the IMF.

Market to ECB: Do something!

“There’s a feeling we’ll have a bit of action from the eurozone on the debt crisis, which has, for a change, put markets in a much more positive mood,” said David Jones, chief market strategist at IG Markets.

China also announced Wednesday that it will cut its banks’ reserve requirements, to help ease liquidity and prop up the global economy.

“This was a surprise, because for much of the last year China has been making things tougher for the banks,” said Jones. “This shows China is being a bit less restrictive on its banks, and banks will now potentially be able to be more aggressive with their lending.”

For now, the positive news out of China and Europe is enough to overshadow the cuts made to the credit ratings of some of the biggest U.S. banks, said Jones.

After the close Tuesday, Standard and Poor’s cut the ratings on dozens of major banks — including Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500) and Citigroup (C, Fortune 500). The downgrades were the result of the agency’s new ratings criteria for the world’s 37 largest financial institutions.

French downgrade could derail eurozone rescue

U.S. stocks finished mostly higher Tuesday, with the Dow and SP extending gains from the previous day’s rally, as investors remained hopeful that European leaders are making progress towards resolving the continent’s debt crisis.

World markets: Asian markets ended lower; as all of the markets closed before the news from various central banks came out. The Shanghai Composite (SHCOMP) tumbled 3.3%, the Hang Seng (HSI) in Hong Kong dropped 1.5% and Japan’s Nikkei (N225) ticked down 0.5%.

Economy: A report from Automatic Data Processing showed that private sector employment grew by 206,000 jobs in November. Economists surveyed by expect private sector jobs to have increased by 125,000 for the month of November.

The government will also release revisions of its third-quarter figures for productivity and unit labor costs. In the afternoon, the Fed’s Beige Book will summarize economic outlooks from the 12 district banks across the country.

Companies: Shares of Bank of America (BAC, Fortune 500) rebounded about 3% in premarket trading Wednesday, after sinking below $5 Tuesday, hitting its lowest level since March 2009.

Companies including American Eagle (AEO) and Jos. A. Bank (JOSB) will release their quarterly results before the opening bell on Wednesday.

The startup choice: Get big or get bought

On Tuesday, American Airlines’ parent company, AMR Corp. (AMR, Fortune 500), announced it had filed for Chapter 11 bankruptcy. The company’s stock plunged more than 80% during trading Tuesday, but rose 27% in premarket trading Wednesday.

Currencies and commodities: The dollar gained against the euro, the British pound and the Japanese yen.

Oil for January delivery slipped 61 cents to $99.18 a barrel.

Gold futures for December delivery fell $8.40 to $1,705 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose slightly, yielding 2%.  To top of page

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Solar power bankruptcies loom as prices collapse

In Uncategorized on November 30, 2011 at 8:03 pm

Slack demand for solar panels combined with falling prices will likely mean many more solar power bankruptcies for the energy sector.

Slack demand for solar panels combined with falling prices will likely mean many more solar power bankruptcies for the energy sector.

NEW YORK (CNNMoney) — The once high-flying solar power sector is headed for tough times, as a combination of slack demand and massive oversupply is leading to plummeting prices and profits for solar panel makers.

The past year was already grim. The Guggenheim Solar (TAN) exchange-traded fund is down 60% since January and sits even lower than it did following the crash in 2008.

Two high profile companies have gone bankrupt in the United States — government-backed Solyndra and Evergreen — and analysts anticipate more failures ahead.

“Solyndra was just the beginning,” said Jessie Pichel, head of clean energy research at the investment bank Jefferies Co. “We’re going to see a lot of companies go bankrupt.”

Just how many? Of the few hundred or so solar panel makers worldwide, just 20 to 40 are expected to remain standing in a few years time, said Mark Bachman, a renewables analyst at Avian Securities.

Solyndra hearing becomes giant waste of time

This isn’t necessarily a bad thing for solar power. Bachman noted that many young industries go through this phase — think of all the auto makers at the beginning of the last century or television makers 40 years ago. As the market matures, the stronger companies survive.

And there’s an upside to declining prices: It means more people are likely to go solar.

But the next couple of years will be wrenching for companies and investors in the solar power space as the weaker players go bust or get bought by larger rivals.

The fall: In some ways, the bust was inevitable. For much of the last decade solar power worldwide saw annual growth rates in the double or even triple digits.

Those tantalizing numbers led to massive over-investment. Stock valuations for publicly traded companies soared, as did state support from the Chinese government, which saw solar power as a growth industry and a way to curb rising pollution.

Both of these things led to a massive amount of available capital. Factories were built and production capacity mushroomed.

But just as all these new solar panels were making their way to market, the debit crisis hit in Europe. The generous subsidies offered to solar power by European governments and utilities were cut. Demand for solar panels fell.

Plus, solar project developers were having a hard time getting credit to build new power plants, further cutting into demand. Prices for solar panels began falling rapidly.

A year ago solar panels were selling for $1.50 to $2 per watt, said Ramesh Misra, a senior analyst at Brigantine Advisors, a research outfit. Now they sell for half that, and the decline hasn’t stopped.

U.S. to investigate Chinese solar ‘dumping’ claims

For solar power developers, even if they have the money and subsidies lined up, there’s every incentive to wait.

“The solar investors think they can get a better price next week than this week,” said Avian’s Bachman. “No one wants to move.”

So inventories build up, companies sell panels at below-market rates just to move product, and the downward spiral continues.

The shakeout: What has to happen to turn things around?

Better access to credit, a more stable subsidy policy and fewer solar panels on the market, analysts say. Fewer panels means fewer solar panel makers.

Many analysts say it’s the top-tier solar producers that have the technology and name recognition to come out on top. Those include The United States’ Sunpower (SPWR) and First Solar (FSLR), as well as China’s Yingli (YGE), Trina (TSL) and Jinkosolar (JKS).

Yet other analysts think it’s the Chinese firms that sell unbranded solar panels that will prevail. These firms have often benefited from government support that includes massive low-interest loans.

These companies have also been accused of selling solar panels below cost, most recently in a trade dispute filed with the U.S. Commerce Department on behalf of some publicly traded solar panel makers.

“It has poisoned the profit pool,” said Hari Chandra, a cleantech analyst at the investment bank Auriga.

Chandra thinks there’s no way the publicly traded firms can compete with the generic Chinese companies, given their backing by the Chinese government.

“You’re not competing with Chinese companies,” he said. “You’re competing with China sovereign.”  To top of page

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Job reports paint positive picture before U.S. data

In Uncategorized on November 30, 2011 at 8:03 pm

Job cuts announced this year have already surpassed last year's total, according to Challenger jobs report.

Job cuts announced this year have already surpassed last year’s total.

NEW YORK (CNNMoney) — Private-sector payrolls surged and planned job cuts eased in November, indicating some improvement in the job market and raising hopes for the government employment report due later this week.

The private sector added a seasonally adjusted 206,000 non-farm jobs in November, according to a monthly report issued Wednesday by payroll-processing company ADP. The company also boosted the number of private-sector jobs reported in October to 130,000 from the originally reported 110,000.

The ADP report trumped expectations. Analysts surveyed by expected private sector jobs to have increased by 125,000 in November.

In a separate report from outplacement consulting firm Challenger, Gray Christmas, layoffs announced in November dropped slightly from the prior month — though cuts in 2011 have already surpassed last year’s total.

Challenger said 42,474 planned layoffs were announced in November, down 0.7% from October’s total. That’s the second straight drop after September’s 28-month high of 115,730.

But job cuts announced this year are up 13% overall and now total 564,297 — already more than 2010′s full-year total of 529,973 — with one month to go.

The reports come two days before the Labor Department issues its intensely watched monthly employment report. A CNNMoney survey of 21 economists forecasts that the economy added 110,000 jobs in November. That’s compared to October, when 80,000 jobs were added to payrolls.

Most of the November gain will likely come from the private sector, where the prediction is for an addition of 135,000 jobs. That assumes they expect the government continued to lose jobs.

The unemployment rate is expected to stay unchanged at 9.0%.

Middle class jobs gone forever, but there’s hope

Government and retail jobs, as well as those in the financial sector, have taken the biggest hit so far this year, the report showed. The government has announced cuts of more than 180,000 jobs this year, while retail has lost more than 48,000 and financial services 56,000.

Given the downsizing in the public sector, Washington, D.C., has had more announced layoffs this year than any state, with more than 98,000 cuts so far in 2011. California is next with just over 60,000 layoffs, followed by North Carolina with nearly 55,000 job cuts.

“Over the past six months, we definitely have seen a shift away from the heavy government job cuts at the state and local level toward increased job cuts at the federal level,” Challenger, Gray Christmas CEO John Challenger said in a press release.

Consumers continue to unload debt

“The worst may be yet to come, as cutbacks spread from the military to every other agency in Washington.”

D.C. suffered more than 15,000 planned cuts in November alone, compared with 4,100 in California and 2,600 in New York.  To top of page

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China steps on the economic accelerator

In Uncategorized on November 30, 2011 at 8:03 pm

China central bank lowers reserve requirement ratio

China’s central bank reversed course on the banking industry, lowering the the reserve requirment ratio by half a percentage point to free up lending.

NEW YORK (CNNMoney) — China is cutting the amount of money banks need to hold in reserve, freeing those funds to stimulate the Chinese economy.

The People’s Bank of China said Wednesday it will lower its reserve requirement ratio for financial institutions by half a percentage point. It was the first such cut in the ratio since 2008, and a change in course after the ratio was raised five times this year.

The cut is effective Dec. 5.

The move is intended to increase liquidity, ramping up the flow of money into the economy to make up for concerns about slackening demand for Chinese products both domestically and abroad, particularly from Europe.

China has experienced rapid growth recently, leading many to worry that the economy could be overheating and runaway inflation could take hold. In response, the government had taken several steps to control soaring inflation without stifling growth.

Since last year, China has lifted interest rates five times and bank reserve requirements nine times, and has also imposed limitations on homebuyers.

Today’s move was seen as a reversal of that policy, indicating that the Chinese economy could be at a tipping point.

In the latest signal that China’s economy is slowing down, Chinese manufacturing has hit a 32-month low, according to a preliminary report for November.

On Tuesday, UBS released a report that lowered their growth forecast for China next year to 8% from 8.3%.

The lowering of the reserve requirement is also viewed as a harbinger of more aggressive moves by the Chinese government to get the economy going.

“We see this as a decisive shift in policy stance from China,” wrote Mark Williams, chief Asia economist for Capital Economics in London, in a report for investors. “Further reserve requirement cuts will follow over the next few months. Bank lending will pick up.”

Chinese manufacturing is slowing down

The decision to lower the reserve requirement appeared to be responsible for a boost in the U.S. premarkets, as international investors anticipate a flow in fresh cash.

“The move will ease constraints on bank lending,” Williams wrote. “The level of excess reserves had dropped very low.”

Williams said that lowering the reserve requirement by half a percentage point was equivalent to injecting 400 billion yuan, or $63 billion, into the banking industry.

He said the impact on lending will be slow and gradual, probably not taking effect until the first quarter of 2012.

–CNN’s Andrew Stevens contributed to this report. To top of page

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Fed, ECB offer aid to global financial system

In Uncategorized on November 30, 2011 at 8:03 pm

NEW YORK (CNNMoney) — Europe is hurting for cash, and central banks around the world are stepping in to give it a boost.

The Federal Reserve, along with five other central banks, acted Wednesday to make it cheaper for banks around the world to borrow U.S. dollars — a staple of global financial transactions.

It’s a big move, meant to not only lower the cost of short-term borrowing for troubled European banks, but also keep the global economy free and clear of an all-out credit crunch as in 2008.

“The euro debt crisis is coming to a head after two-plus years of dragging and hand wringing, and I think what these central banks are trying to do is send a signal to markets that there isn’t going to be a huge liquidity crunch like there was in fall 2008,” said Cornelius Hurley, a Boston University professor and former counsel to the Fed Board of Governors.

Indeed, world stock markets surged on the news, pushing the Dow (INDU) back into positive territory for the year. But what does it all mean?

The problem: In a smoothly operating credit market, banks lend to each other on a daily basis. But now, Europe’s debt crisis has escalated to the point where the region’s banks are so jittery, they’re reluctant to lend to each other.

The evidence of this is seen in the cost European banks pay to borrow dollars on the open market. Those costs skyrocketed this month, to their highest levels since October 2008, sparking fears that a Lehman-like credit crunch is brewing in the region.

Back then, the Fed opened so-called “dollar liquidity swaps” — basically credit lines to foreign central banks, as a way to keep dollars flowing in the global financial system. That program has since been extended and revived several times.

Velshi: Banks help Europe buy time

The Fed’s lifeline: This time around, the Fed nearly cut in half the rate foreign central banks pay to borrow U.S. dollars. The move was coordinated with the European Central Bank and the central banks of England, Japan, Switzerland and Canada.

While the Fed never said the plan was meant to target European banks, it’s certainly implied. Since the Fed set up this facility in September, the ECB has been its largest borrower. Currently, the ECB holds $2.2 billion in outstanding loans from the Fed.

In exchange for those loans, the ECB is paying the Fed a 1.08% rate. But, starting on December 5 and lasting through February 1, 2013, the Fed has slashed that rate to around 0.58%.

In effect, the ECB will soon be getting an even cheaper rate on U.S. dollars, than American banks do (they pay a 0.75% rate at the Fed’s discount window).

Overall, these efforts are meant to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Federal Reserve said in a press release.

In addition to the dollar swaps, the six central banks also created a temporary mechanism making it easier for them to exchange other currencies too. That tool gives any of the central banks easier access to euros, Japanese yen, British pounds, Swiss francs and Canadian dollars should they need those currencies to assist their region’s banks in a crisis.

“These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions,” the Federal Reserve said in a QA about the plan.

The backlash: Fed critics pounced on the move Wednesday, saying that pouring dollars into Europe only creates more risks for the Fed. Rep. Ron Paul, perhaps the Fed’s most outspoken critic, called the move “inflationary.”

“Central banks are grasping at straws, hoping that flooding the world with money created out of thin air will somehow resolve a crisis caused by uncontrolled government spending and irresponsible debt issuance,” he said in a press release.

It’s important to note — the Fed’s funding does not come from U.S. taxpayers, and is independent from the federal budget.

And, since the European Central Bank will be the one actually making loans to European banks, the Fed is not on the hook if one of those banks fails, said Paul Ashworth, chief U.S. economist with Capital Economics.

In its statement Wednesday, the Fed also stressed that the policy is designed to offer help to foreign banks, and that U.S banks are not in need of liquidity, at least for now.

“U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets,” the central bank said. “However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions.”

China starts easing

The plan is not meant to be an be-all, end-all solution to the euro zone’s troubles.

The European Central Bank, which meets next Thursday, is widely expected to lower interest rates to further ease financial conditions in the region and European state heads are still scheduled to meet in yet another summit next week, to discuss more potential solutions.

Meanwhile, the People’s Bank of China also announced a plan to increase liquidity Wednesday by lowering its reserve requirement ratio for financial institutions by half a percentage point. To top of page

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Americans to forfeit $34.3 billion in vacation days

In Uncategorized on November 30, 2011 at 8:03 pm

The average American will forfeit two earned vacation days this year for a grand total of 226 million unused vacation days nationwide, according to a survey by Expedia.

The average American will forfeit two earned vacation days this year for a grand total of 226 million unused vacation days nationwide, according to a survey by Expedia.

NEW YORK (CNNMoney) — There’s still a month to go before the end of the year, but most Americans will let their last remaining vacation days go unused.

The average American worker earned 14 vacation days this year but will only take 12 of them, according to a survey by Expedia. That’s about the same number of days they left on the table last year.

While two forfeited days of vacation may not seem like a lot, it can really add up. Altogether, Americans are giving up 226 million unused vacation days this year. Considering that, according to the Bureau of Labor Statistics, the average full-time worker earns $39,416 a year — that’s $34.3 billion worth of time.

The reason most workers say they chose to slave away at work rather than relax on a beach, is that they could not afford to travel, Expedia said. “Lack of planning” was the second-most-cited excuse among those surveyed.

“Now that companies are doing more with less, people have a hard time taking vacation because there’s so much work to do,” said Jennie Dede, vice president of recruiting for job placement firm Adecco.

Plus, “people feel that they need face time in the office,” added Stuart Rubinstein, managing director at TD Ameritrade. “They worry that being out of the office might make them next on the list.”

And with so many workers feeling insecure about their jobs and their own economic situation, many are determined to pay down debt and boost savings, rather than splurge on vacations, which can be costly, he said.

Most Americans can’t afford a $1,000 emergency expense

Other surveys on unused vacation time have found that Americans leave even more valuable vacation days on the table.

A similar survey by Hotwire released Nov. 17 found that the average American employee leaves 6.2 days of paid vacation days unused at the end of each year.

“Too many Americans are getting caught up in their everyday routine and are either forgetting to use their vacation or assuming travel for the remainder of the year is too expensive,” Clem Bason, president of the Hotwire Group, said in a statement.

Another survey by JetBlue also released last month found most Americans will forfeit an average of 11 days — more than two weeks off — this year.

That survey also said that a majority, or 57%, of working Americans will have unused vacation time at the end of the year, and while most workers said they deserved to take that time off, many also admitted having reservations about asking their bosses for a vacation.

Ironically, “most managers believe you should take the time to enjoy your family, enjoy your life and come back refreshed,” Dede said. “Vacation is a time to decompress and get your head out of the water.”

Meanwhile, workers in other parts of the world seem to have no problem enjoying their downtime, according to Expedia’s survey. Workers in France earned 30 vacation days, on average, in 2011, and often used every single one of those days. The same goes for employees in Brazil and Spain, Expedia said. In the UK, workers get 25 days and they used all 25.

Only in Asian countries did workers put less emphasis on vacations than Americans, according to the survey. In Japan, for example, workers earned 11 days a year and used just five.

Expedia’s Vacation Deprivation online survey polled 7,803 workers in 20 countries. To top of page

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Chobani: The unlikely king of yogurt

In Uncategorized on November 30, 2011 at 8:03 pm

Chobani founder Hamdi Ulukaya

Chobani founder Hamdi Ulukaya

FORTUNE — Chobani’s 40-year-old founder, Hamdi Ulukaya, has grown his company in just a few short years into a $257 million business. It is now No. 3 among all yogurt brands (see chart at bottom), just after Yoplait and Dannon, and tops the booming Greek-style yogurt niche, which grew 200% last year. In November, Chobani (pronounced cho-BAN-ee, meaning “shepherd”) broke ground on a new $100 million plant in Twin Falls, Idaho, to help fuel its U.S. expansion, and it recently purchased a dairy in Australia. Here’s the Greek-yogurt king’s story:

Growing up in eastern Turkey, I was not really involved with the family business — sheep and cow farming, yogurt and cheese making. But I think I learned from my father the unspoken business language or instincts that go back thousands of years. We call it Anatolian business practice — your reputation is your asset.

I came to the U.S. in 1994 to learn English and go to business school, but I took only a few business courses at the State University of New York at Albany and didn’t finish. My father had come to visit. He said, “They don’t have very good cheese here. You should make cheese.” I said, “What? I didn’t come all the way here to make cheese!” But I did. I started a feta cheese company, Euphrates, in upstate New York in 2002. It was two years of the most challenging days of my life.

By 2005, I thought maybe I would relax and have a family. But one day I opened a piece of mail. It said, “Fully equipped yogurt factory for sale.” I threw it away. But then I thought about it later and went back and got it out of the garbage. I called. It was nearby, in South Edmeston, N.Y., near Utica. Kraft (KFT, Fortune 500) was closing it and getting out of the yogurt business. There were a million reasons not to buy it. My friends said, “Don’t do it.” But I did. I was listening to my instincts that there’s something in this. I hired five people from the 55 that Kraft had let go. When I first met with them, they said, “What are we going to do?” I said, “Let’s start by painting the walls.” Then I hired a yogurt master. It took a year and a half to make a perfect cup of yogurt. Then we put our sales strategy together. We didn’t want to do high end. We went to the big chains and said we wanted to put it in the regular yogurt section. We launched the product in 2007.

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When the first 200 cases from our first three small stores in Long Island were getting repeat orders — meaning that customers were coming back the next week to buy the product again — that was a big relief. Then we got BJ’s [Wholesale Club] in late 2009, and Costco (COST, Fortune 500) after that. We were overwhelmed and humbled, but not surprised. Deep down we knew we had something really good. We took a plant that was being closed by a big company thinking there was no good use for it, and we came in with a different perspective. We bought some used equipment, as simple as we could [buy].

When we saw that it was working, we started investing more in the plant. It’s the same plant, same community, and now we are the biggest yogurt plant in the Northeast. We use 3 million pounds of milk a day. If we had said to local farmers three years ago that we were going to need that much milk, they would have said, “You’re crazy.” But we wanted to make sure that the milk was made proudly by local people, and they have supported us with supply. With our planned $200 million plant expansion, we will ultimately have more than 1,200 employees in New York, plus another 400 at our new plant in Idaho by the middle of next year.

Everyone asks me why someone Turkish is making Greek yogurt. In Greece it is not called “Greek yogurt.” Everywhere in the world it is called “strained yogurt.” But because it was introduced in this country by a Greek company, they called it “Greek yogurt.” It doesn’t matter whether it’s Greek yogurt or Turkish yogurt, as long as it’s a good yogurt.

The most exciting aisle in the supermarket now is yogurt. The market is really growing big, and what’s really growing is Greek yogurt. In January we launched our kids’ line in smaller portions, and this January we are planning to launch three new Chobani flavors — apple cinnamon, blood orange, and passion fruit. I chose pomegranate as one of our original flavors because I grew up with it. It’s unusual, but it’s one of the best successes we have.

The yogurt story in this country is just getting started. We feel that as long as we stay true to who we are — quality, good-tasting products that are priced fairly and honestly positioned — our growth is limitless. So that’s what we’re doing, and we won’t compromise. All this growth has happened at the worst time this country has faced economically. But I trusted my instinct, and I designed the company to support it and support the growth. Maybe now I can relax and have a family!

My advice

Keep direct contact with consumers. I don’t believe in “customer research.” We just listen directly to consumers. All feedback on our website comes directly to my BlackBerry. Complaints are not a bad thing. Complaints are an opportunity. In fact, I have a lot of people who work for the company who started out as consumers. Our head of marketing was a consumer. I don’t remember, but he made a suggestion in a very clever way.

Keep ‘em happy. Nobody’s job is more important than anybody else’s. The person who was answering calls is now the head of purchasing. We interact very humanly with the farmers, the consumers, and the suppliers. There is a spirit in this country I’ve not seen anywhere else in the world. We don’t make work a stressed place; we make it a fun place. You should have joy together.

Seek perfection. I mean that I have to enjoy it. It has to be nutritious, have real fruit, probiotics, and be low in fat or no fat, all natural, and hormone-free. It has to be accessible in price for everyone, not just high-end consumers. The market might go up and down, but as long as we keep up the quality, we are okay. We want a good product, and we want to make it in a good way — for consumers and the community.

This article is from the December 12, 2011 issue of Fortune. Chobani, which confirmed press reports that it was a $257 million business in 2010, said after publication that sales for 2011 are expected to be about $700 million. To top of page

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