Damage from Irene appears to be less than feared, a bit of reassuring news for a fragile economy.
Insured damage from Irene will range between $2 billion and $3 billion, and the total losses will likely be about $7 billion, according to preliminary estimates by Kinetic Analysis Corp. a consulting firm. Both figures are less than had been feared and will likely have little impact on the nation’s $14 trillion economy.
“Irene left several places with black eyes, but it doesn’t seem to have delivered an economic knockout,” said Ryan Sweet, an economist at Moody’s Analytics.
The estimates from Kinetic Analysis, based in Silver Spring, Md., suggest that Irene will have caused far less insured damage than the $6 billion the industry paid out after Hurricane Isabel struck the East Coast in 2003.
The long-term costs of Irene will grow as storm-ravaged areas deal with lost business, insurance claims, dislocated workers and transportation disruptions _ costs that will take months to fully calculate.
Still, rebuilding and repairing the damage from the storm will likely be enough to boost economic output in the final three months of this year, economists say.
For now, power outages and flooding will close some businesses, costing workers lost pay and likely boosting temporary layoffs. Transportation and shipping may also be disrupted.
Chuck Watson, Kinetic’s director of research and development, noted that the impact on businesses was limited, in part, because the impact was felt on a weekend payday loan. Even so, Watson and Sweet said small businesses on the North Carolina coast will likely lose two weekends of tourist activity, including the travel-heavy Labor Day weekend.
Millions of people have lost power from the storm, and analysts said the length of the outages and the extent of disruption to public transportation in cities like New York will help determine the economic damage.
Crews are already restoring power in Southern states hit by the storm and are starting work in the northeast.
Irene slammed into a region that is key to the nation’s economic health. The mid-Atlantic and New England are home to several major cities and account for about 16 percent of the nation’s economic output, Sweet said. The region also has about 14 percent of the country’s workforce.
That led many analysts to worry about the potential impact of a major hurricane. The economy is struggling. Any major shock could tip it back into recession. The economy expanded at a meager 0.7 percent annual rate in the first six months of the year.
Watson said his firm initially feared Irene would be much more powerful when it made landfall in North Carolina and would remain strong by the time it pummeled New York City. That could have caused damage of as much as $30 billion, he said.
But by Friday it was apparent the storm had weakened and would cause much less damage.
The endgame at hand, House Republicans lined up Thursday to pass legislation to prevent looming government default while slicing nearly $1 trillion from federal spending. Senate Democrats pledged to scuttle the bill swiftly in hopes of forcing a final compromise.
“Let’s pass this bill and end the crisis,” said House Speaker John Boehner, the president’s principal Republican antagonist in a new and contentious era of divided government. “It raises the debt limit and cuts government spending by a larger amount.”
President Barack Obama has threatened to veto the measure, and in debate on the House floor, Rep. Debbie Wasserman Schultz of Florida savaged it as a “Republican plan for default.” She said the GOP hoped to “hold our economy hostage while forcing an ideological agenda” on the country.
Despite the sharp rhetoric, there were signs that gridlock might be giving way.
“Around here you’ve got to have deadlock before you have breakthrough,” said Sen. Kent Conrad, D-N.D. “We’re at that stage now.”
Wall Street suffered fresh losses as Congress struggled to break its long gridlock. The Dow Jones industrial average was down for a fifth straight session.
The Treasury Department moved ahead with plans to hold its regular weekly auction of three-month and six-month securities on Monday. Yet officials offered no information on what steps would be taken if Congress failed to raise the nation’s $14.3 trillion debt limit by the following day.
Without signed legislation by Aug. 2, the Treasury will not have enough funds to pay all the nation’s bills. Administration officials have warned of potentially calamitous effects on the economy if that happens _ a spike in interest rates, a plunge in stock markets and a tightening in the job market in a nation already struggling with unemployment over 9 percent.
White House press secretary Jay Carney outlined White House compromise terms: “significant deficit reduction, a mechanism by which Congress would take on the tough issues of tax reform and entitlement reform and a lifting of the debt ceiling beyond … into 2013.”
The last point loomed as the biggest obstacle.
The House bill cuts spending by $917 billion over a decade, principally by holding down costs for hundreds of government programs ranging from the Park Service to the Agriculture Department and foreign aid.
It also provides an immediate debt limit increase of $900 billion, which is less than half of the total needed to meet Obama’s insistence that there be no replay of the current crisis in the heat of the 2012 election campaigns.
An additional $1.6 trillion in borrowing authority would be conditioned on passage of at least $1.8 trillion in further savings to be recommended by a newly created committee of lawmakers. Those deficit reductions would presumably come from cuts to benefit programs such as Social Security and Medicare, as well as an overhaul of the tax code generating additional government revenue.
The GOP bill’s $917 billion in upfront spending cuts was trillions less than many tea party-backed rank-and-file Republican lawmakers wanted, but a total that seemed nearly unimaginable when they took power in the House last winter with an agenda of reining in government. Numerous Republicans grumbled that the legislation didn’t cut more deeply, and Boehner and the rest of the GOP leadership have spent their week cajoling reluctant conservatives to provide the votes needed to pass it.
By most accounts, they were succeeding.
“It gives us a little bit of heartburn because it doesn’t go big enough,” said Rep. Sean Duffy, R-Wis., a first-term lawmaker who said he would vote for the bill as the best one available.
Another first-term Republican, Rep. Martha Roby of Alabama, said the bill was “far from perfect. But I don’t have the luxury of writing the plan by myself, and neither does Speaker Boehner.”
While the White House and Democrats objected to the House bill, they readied an alternative that contained similarities.
Drafted by Senate Majority Leader Harry Reid, it provides for $2.7 trillion in additional borrowing authority for the Treasury. It also calls for cuts of $2.2 trillion, including about $1 trillion in Pentagon savings that assume the end of the wars in Iraq and Afghanistan.
Even before the House voted, Reid served notice he would stage a vote to kill the legislation almost instantly.
“No Democrat will vote for a short-term Band-Aid that would put our economy at risk and put the nation back in this untenable situation a few short months from now,” he said.
With the House and Senate focused on debt-limit legislation at opposite ends of the Capitol, eleven religious leaders protesting budget cuts were arrested in the Rotunda midway between the two chambers.
Democratic Rep. Chellie Pingree of Maine said on the House floor that they were praying for those who will be “hurt the hardest” by the bill being considered.
Rep. David Dreier, R-Calif., countered that he, too was praying _ to avoid a default.
The day’s events marked the climax of a struggle that began last winter, when the Treasury Department notified Congress it would need additional borrowing authority, and Boehner said any increase would have to include steps to reduce future spending.
At first the White House balked at the terms, then relented. That gradually morphed into a series of bipartisan negotiations, one led by Vice President Joe Biden, then another by Obama, and finally, a round of golf that led to stab at a “grand bargain” between the president and Boehner.
Boehner announced last Friday he was calling off the talks, setting in motion a frantic week of maneuvering as the default deadline grew near.
Google may be entering a make-or-break phase in its history now that U.S. regulators have opened an investigation into whether the company has been abusing its dominance of Internet search and advertising to stifle competition.
The probe by the Federal Trade Commission, confirmed by the company Friday, will require Google to convince regulators that its closely guarded recipe for search results is designed to give people the best recommendations, not bury links to its rivals free credit report and score.
The inquiry also is expected to peer into Google’s financial engine: the advertising links tied to the subject of each search request. Some of these commercial messages appear, shaded in color, at the top of the results page, while others are stacked in the right-hand column.
Even as Google has expanded into video, mobile phones and TV, the text advertising that pops up alongside search results and other Web content generates most of Google’s revenue
Sudan’s president threatened to block pipelines in the south if the government there doesn’t pay to transit oil or share it with Khartoum, the official news agency reported Wednesday.
Southern Sudan voted overwhelmingly in January to secede from Sudan and become an independent country in July. That vote was part of a 2005 peace deal that ended more than two decades of war.
The two governments are still negotiating how oil wealth will be shared between the north and the south.
President Omar al-Bashir’s comments late Tuesday in the port city of Port Sudan seem to be hardening his side’s negotiating position, particularly in the context of borders clashes.
Al-Bashir said the southerners “have one of three options: either we share the oil, or they pay fees and taxes for every single barrel that passes through the north or we will shut down the pipeline,” according to Sudan’s official news agency.
Relations between the two partners remained rocky throughout the transitional period, and tension has increased since the vote. Oil is at the center of the fraught relations, as most of it lies in the south, but all the pipelines and the transporting port are in the north.
The south, which does not have any refineries of its own, relies on oil for more than 95 percent of its budget.
Even so, al-Bashir said his country still wants good relations with the south.
Troops from northern Sudan moved into the disputed central Abyei region last month, sending tens of thousands of people who are aligned with the south fleeing.
After regional mediation, the two sides signed an agreement Monday to demilitarize the area.
President Barack Obama urged north and south Sudan to agree to an immediate cease-fire in the state of South Kordofan. In a statement, he praised an agreement to allow Ethiopian peacekeepers into the contested Abyei area.
The U.S. says Sudanese forces have shelled and bombed the area and that there are reports that forces aligned with the government are arresting and allegedly executing southern Sudanese forces and sympathizers.
Obama said reports of attacks based on ethnicity were “deeply disturbing.”
Airline profits will likely plummet this year because of natural disasters, political violence and higher fuel prices, an industry group said Monday.
Airlines will probably earn about $4 billion in 2011, down from $18 billion last year, the International Air Transport Association said. IATA’s previous forecast in March estimated 2011 profits of $8.6 billion.
“Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations,” IATA Director General Giovanni Bisignani said in a statement. “That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance.”
Higher fuel costs _ crude rose to $115 last month from $84 in February _ are the largest obstacle to airline profitability, IATA said.
The industry’s fuel bill will likely rise by $10 billion this year to $176 billion and fuel now accounts for 30 percent of an airline’s costs, up from 13 percent in 2001, IATA said.
Airlines are counting on the global economy continuing to grow to help offset higher oil prices. Passenger numbers will likely increase 4.4 percent this year while cargo should grow 5.5 percent, though both forecasts are below IATA’s March estimates.
“The corporate sector is cash-rich, business confidence is high, and world trade continues to expand,” IATA said. “The key risk to this outlook is a weakening of global economic growth.”
IATA expects a razor thin 0.7 percent profit margin for airlines this year on revenue of $598 billion.
The arrest of IMF chief Dominique Strauss-Kahn complicates a key European meeting on whether to give Greece billions more in aid _ but experts insisted one man’s troubles won’t keep the 17 eurozone nations from trying to contain a debt crisis that threatens them all.
Eurozone financial leaders are to discuss Greece’s deteriorating economy Monday at a Brussels meeting where experts will brief them on the situation in Athens. Key questions include what conditions to put on more help to the debt-strapped nation, with European leaders unhappy at what they see as limited Greek efforts to raise money by selling government property.
Strauss-Kahn was arrested Sunday in New York on suspicion of sexual assault on a hotel maid.
Despite the arrest, the International Monetary Fund said in a statement it remains “fully functioning and operational.” The IMF Executive Board convened an informal session Sunday and made Strauss-Kahn’s deputy, John Lipsky, acting managing director while its chief was unavailable.
The Washington, D.C.-based lending body also sent Nemat Shafik, a deputy managing director who oversees IMF work in several EU countries, to Monday’s eurozone meeting to replace Strauss-Kahn.
Strauss-Kahn had to cancel his Sunday meeting with Chancellor Angela Merkel in Berlin, where the German public is deeply skeptical about putting up any more money for Greece. Germany, as Europe’s largest economy, provided a large chunk of the euro110 billion ($157 billion) bailout for Greece from the European Union and the IMF last year.
Greek government spokesman Giorgos Petalotis insisted the arrest would not affect his nation’s efforts to resolve its financial woes.
“The Greek government deals with institutions, not individuals, and continues unimpeded to implement the program that will get it out of the crisis,” Petalotis said.
German Finance Minister Wolfgang Schaeuble struck a similar tone, saying the eurozone meeting would go ahead as planned. And European politicians had already gotten used to the idea that Strauss-Kahn may leave his post soon to run for president of France next year.
Yet others said Strauss-Kahn’s immediate departure from the financial stage adds additional uncertainty to the already difficult situation in Europe.
“The leadership vacuum at the IMF comes at a highly inopportune time for Europe, which is teetering on the brink of a full-blown debt crisis,” said Eswar Prasad, a professor of international economics at Cornell University and a former IMF official us fast cash.
Many investors believe that Greece’s financial troubles are so overwhelming that a Greek default or a restructuring that would give creditors less than the full value of their bonds is inevitable. But that would be a serious blow to the euro, and eurozone governments and the European Central Bank appear determined to prevent it.
Merkel has stressed that her government will need clear conditions for any new Greek loans before it will back more help. But Schaeuble has conceded that if the experts’ full report in June shows that Greece can’t pay its debts, something more will have to be done.
The IMF put up euro30 billion ($43 billion) of that Greek loan and also supplies expertise in assessing whether Greece and other countries that get emergency loans are living up to the conditions attached to them.
A euro78 billion ($111 billion) bailout for Portugal was also on the agenda for Monday’s meeting in Brussels, as is Ireland’s progress in dealing with the financial morass that led to its own EU-IMF bailout. With the terms of the Portuguese bailout largely decided, EU finance ministers are expected to signal approval of that deal.
Although eurozone ministers were talking about Greece, a new bailout announcement was not planned for Monday. Instead, investors expected a general statement of support, followed by days or weeks of more haggling.
Marco Valli, chief eurozone economist at UniCredit, said Greece’s troubles were separate from those of Strauss-Kahn, and he expected a decision on more help for Greece in the near future.
“There is no way that just because the IMF’s chief gets into personal trouble that Greece would be left alone,” Valli said. “Maybe it can have some impact on timing, but our view is that this is not going to have a meaningful impact on the bottom line, which is that Greece would get a second bailout package.”
Other analysts agreed that the IMF will simply navigate through the upcoming difficulties.
“The IMF is not a one-trick pony,” David Buik at BGC Partners in London. “European markets may be damaged by this news for a few hours but there is plenty of depth to the IMF.”
TOKYO/NEW YORK
Potash Corp., the world
Japanese Trade Minister Banri Kaieda said he asked China and South Korea to rely on scientific evidence in deciding whether to ban Japanese goods over concern they may be contaminated with radiation.
Chinese Commerce Minister Chen Deming and South Korean Trade Minister Kim Jong Hoon both agreed that will be the criteria for any import restrictions, Kaieda told reporters after meeting his counterparts in Tokyo today. Chen and Kim also said safety is their priority, Kaieda added.
Trading partners worldwide are testing Japanese products for radiation following leaks at the crippled Fukushima Dai-Ichi plant, the world’s worst nuclear disaster since Chernobyl.
China, Japan’s largest export market, earlier this month expanded a ban on imports of food and agricultural produce, threatening to exacerbate an export slump in the world’s third- largest economy after a record earthquake disrupted supply chains.
South Korea, Singapore and the U.S. have also halted imports of some products on concern that produce grown around the stricken nuclear station has been contaminated.
Japan, South Korea and China agreed on the need to accelerate negotiations to form a free-trade agreement among them, and to “resist protectionism in all forms,” according to a joint statement released after the discussions today.
Paul Ceglia, a New York resident who sued Mark Zuckerberg last year for 50% ownership of Facebook, has re-filed his complaint with e-mails that he says prove his case.
The amended complaint, filed Monday in New York district court, alleges that Ceglia and Zuckerberg signed a contract in April 2003 that gives Ceglia half ownership of what is now Facebook.
The "work for hire" contract that Ceglia filed as evidence says he paid Zuckerberg $1,000 for development work on a site called StreetFax, and $1,000 for work on the site "the Face Book," which Zuckerberg had already started.
The alleged contract also says that Ceglia would own 50% of the "software, programming language and business interests" of Facebook. That contract was included in Ceglia’s suit from 2010. (Click here to view the contract.)
Ceglia re-filed the suit on Monday with high-profile law firm DLA Piper, and he included several alleged e-mails between him and Zuckerberg from July 2003 to July 2004. The amended complaint was first reported by Business Insider.
"This is a fraudulent lawsuit brought by a convicted felon, and we look forward to defending it in court," said Facebook’s legal counsel, Orin Snyder of Gibson, Dunn & Crutcher. "From the outset, we’ve said that this scam artist’s claims are ridiculous and this newest complaint is no better."
In 2009, Ceglia was convicted of fraud in connection with a wood pellet company he owned.
What’s in the e-mails: The purported e-mails started off mundane, with the two men weighing the possibility of charging a monthly fee for Facebook or entering into a licensing agreement with Harvard University.
But the correspondence devolved when Zuckerberg asked for more funding and a waiver of the ownership agreement, blaming the development delay on Ceglia’s multiple requests for extra work on the StreetFax site.
"I’m starting to think you just blew that money Mark," read the response from Ceglia, whose grasp of grammar appears shaky. "You know perfectly well that you can’t just take a persons investment and then spend it on women and beer or whatever you do up there in Harvard."
Ceglia then threatened to call Harvard and "perhaps your parents in Dobbs Ferry and let them know whats been going on."
A few weeks later, Zuckerberg complained about a clause in the agreement that entitled Ceglia to an additional 1% of Facebook for every day of delay after January 1.
"According to our contract I owe you over 30% more of the business in late penalties which would give you over 80% of the company," Zuckerberg wrote. "I’d like to suggest that you drop the penalty completely and that we officially return to 50/50 ownership."
Ceglia replied, in part, "OK fine Mark 50/50 just as long as we start making some money from this thing."
Thefacebook.com launched on Feb. 4, 2004. A few days later, according to the e-mails, Zuckerberg told Ceglia that he "must take creative control" and that he didn’t want to publicize the site with flyers.
On April 6, 2004, Zuckerberg wrote that he had "become too busy to deal with the site and no one wants to pay for it, so I am thinking of just taking the server down."
Ceglia told Zuckerberg to "grow up, take a f—ing ethics class, choke yourself with that silver spoon of yours."
The final e-mail included in the suit was a July 22, 2004, mea culpa from Zuckerberg: "Paul, I am guessing that you don’t want to talk to me but I wanted to say happy birthday and that I hope to resolve our differences. I see that what I did was wrong and I am really sorry that I behaved as I did…"
The complaint alleges that at the time of that e-mail, Zuckerberg "had received or was about to receive funding from angel investors and was in the process of meeting with venture capital funds to provide additional capital. At no time did Zuckerberg inform Ceglia of these facts."
The complaint goes on to accuse Zuckerberg of multiple types of fraud and misappropriation of assets.
Incidentally, one of the e-mails seems to reference the Winklevoss twins, who lost their own appeal against Facebook on Monday.
A November 2003 e-mail from Zuckerberg read: "I have recently met with a couple of upperclassmen here at Harvard that are planning to launch a site very similar to ours. If we don’t make a move soon, I think we will lose the advantage."
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