whipsaws


Wall St rebounds as Europe crashes
3.13.03   BBC

"There's one word for it - carnage. It's horrible," said GNI London brokerage's Richard Wright. "Nobody has any confidence. Nobody wants to buy anything. And if they do buy anything they're wrong within about 10 minutes. It's fairly gloomy."
Traders blamed falls in Europe on poor corporate news, high oil prices, and the ever-present fears of war against Iraq. Political moves Wednesday heightened risk of a lone US campaign against Iraq. "It increasingly seems that the US is going to go it alone, which is the least desirable outcome," said independent brokerage E*trade global strategist Rupert Thompson.

Report that US crude stocks unexpectedly slumped prompted a rise in NY oil prices. "People felt relatively comfortable with the idea that the oil price was up, but was coming straight back down again," Mr Thompson said. "But now we know that it isn't going to come down quickly and that will be the basis for more economic weakness."
Poor corporate news worsened sentiment, with UK property firm Canary Wharf reporting sharply lower profits, and a weak letting market. Canary Wharf shares closed down 22%. In Paris, Alstom shares' price halved after the engineering group announced sale of a key business and departure of its chief executive.
In Italy, Telecom Italia shares plunged by 11% as investors derided plans to merge with Olivetti. Analysts at Dresdner Kleinwort Wasserstein said the deal's terms were "grossly unfair" to minority shareholders.

Germany's Dax index for much of Wednesday was below the 2,200 mark which Merrill Lynch analysts believe marks the current bear market as worse than that of the 1930s' Great Depression. "70% drop in equity prices since 3.7.00 now threatens to take historic proportion," Merrill Lynch said in a recent report.
Shares in insurers were in the firing line, as investors worried over solvency in the face of declining share prices. Munich Re stock stood 8.6% down in afternoon trade while, in London, Royal & Sun Alliance shares closed 9.3% lower, and Friends Provident shares plunged 11.4%.

Many analysts urged calm amid sell-off with Christows Stockbrokersdir. David Franklin forecasting imminent revival in share prices. "This represents a final sell-off in this stage of the bear market, panic & capitulation in the valley of death," Mr Franklin said. "The low point, and a starting level for a substantial rally is not far away."

Vienna, Austria   A surge in world oil output last month has left producer countries with too little spare capacity to fully offset a wartime halt in supplies from Iraq, the International Energy Agency warned. Output increased 2.5% worldwide in February and oil inventories tightened in major importing nations, the agency said Wednesday. Fears of a U.S.-led attack on Iraq propelled prices to their highest levels since the 1991 Gulf War International oil markets are "running on empty" as war clouds gather again in the Persian Gulf, the agency said in its monthly oil market report.
"Further supply disruption would tax a system operating at close to capacity," the report said.

The only reliable cushion for consumers may be the 4 billion barrels in strategic stocks of crude that IEA members have amassed for use in an emergency, it added. Tuesday Organization of Petroleum Exporting Countries decided to leave its oil production quotas unchanged at 24.5 million barrels a day. OPEC, which pumps about a third of the world's crude, made clear that it would boost its output to try to cover any shortfall arising from a war.
IEA is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world's wealthiest oil-importing countries. While highlighting many causes for concern in oil markets, the IEA expects that the end of winter, peak season for heating oil sales, will reduce demand for crude by about 1.6 million barrels a day. Such a decrease would in itself offset a loss of Iraq's current exports under the U.N. oil-for-food program, the report said.

IEA acknowledged efforts by OPEC & independent producers to put additional crude on the market. World production rose Feb. 2003 by 1.96 million barrels a day to 79.41 million barrels, and OPEC contributed more than three-fourths of the increase, the agency said. OPEC member Venezuela boosted its daily production by 850,000 barrels as its oil industry continued to recover from a crippling strike. Saudi Arabia's output grew by 330,000 barrels a day, and of OPEC's 11 members, only Iraq & Indonesia failed to pump at higher levels last month, the report said.
"If the IEA's numbers for OPEC production in February are correct, there's a lot of oil on the water that should be hitting inventories in a few weeks. That's the good news for consumers," said Deutsche Bank oil price strategist Adam Sieminski in London. Sieminski agreed that OPEC's limited amount of spare capacity could be a problem if markets suffer a serious supply disruption. Most producers are pumping all they can, and only Saudi Arabia, with world's biggest oil reserves, has significant room to pump more.

OPEC claims to have 2 million to 4 million barrels in additional production capacity. IEA argued that OPEC's "effective spare capacity", additional crude it could produce on short notice, was much smaller. The agency said OPEC's effective spare capacity fell last month to 1.72 million barrels a day from 2.37 million barrels in January, as the cartel produced more oil to make up for the outage from Venezuela. With OPEC increasing production to cash in on current high prices, this extra capacity has probably diminished in March to fewer than 1 million barrels a day, the report said.
It warned that OPEC would therefore be unable to quickly cover a war-induced shortfall from Iraq, which produced 2.49 million barrels a day in February. If U.S.-led forces attacked Iraq during the second half of March, the IEA suggested that it would be May before OPEC could offset the shortfall.

NYC   Intensifying its claim that MCI compromised national security, AT&T Corp. said Wed. it had new evidence the carrier improperly routed calls placed by the U.S. military through Canada. Meanwhile MCI hailed a bankruptcy court's approval of its record $750 million settlement with federal regulators. Judge Arthur Gonzalez's decision Wednesday was the last of 2 required court approvals for the settlement.
In its latest filing, AT&T told Gonzalez calls diverted by MCI incl some placed by Defense Dept, Army and Navy. AT&T alleged improper routing was occurring weekly, and sometimes daily.
MCI insisted it has not placed sensitive govt calls at risk. "The truth is secure govt traffic travels over MCI's network via a dedicated connection & encryption," MCI spokesman Peter Lucht said. "National security has not been compromised."

Telecommunications analysts have said simply diverting calls to Canada would not necessarily have made them more vulnerable to eavesdropping. The dispute began last week when AT&T said it had evidence that calls from the State Dept and other govt agencies had been routed through Canada. AT&T & other long-distance competitors have been ferociously fighting efforts by MCI, the former WorldCom Inc., to emerge from the largest bankruptcy in U.S. history.

While it has promised to investigate any new information, MCI has repeatedly characterized the new charges by AT&T as no more than a competitive ploy designed to derail the bankruptcy process. Stasia Kelly, named this week as MCI's new general counsel, hailed the judge's ruling on the SEC settlement as a milestone and said the co. was looking forward to finishing its bankruptcy case.
"It represents additional validation of all the positive steps the company has taken over the past year to both put its house in order and establish itself as a leader in good corporate governance," she said. A federal district court judge last month approved the settlement which includes the largest penalty the SEC has ever reaped from a single public co.

Besides the security issue, AT&T contends govt might not have done business with MCI if it knew the carrier was diverting traffic to Canada. Last week, federal govt suspended all new contracts with the co., calling MCI's ethics & internal controls inadequate.
Meanwhile, federal prosecutors are looking into accusations by AT&T, other rival carriers and former MCI executives that the company defrauded phone companies of hundreds of millions of dollars. AT&T claims MCI has used third-party carriers to send calls to Canada, calls sent back into U.S. on AT&T lines, forcing AT&T eventually to pay the local fees where the calls wound up.
MCI has admitted using third-party carriers in an attempt to curb costs, but says the practice is widespread in the telecommunications industry and perfectly legal.

As part of its filing with the bankruptcy court, AT&T submitted a list of sample calls it said had been routed through Canada. It claimed AT&T wound up paying the access fees because of the MCI scheme. The list included 12 calls placed by the Defense Dept, most of them in July and as recently as 7.28.03. AT&T also said MCI had sent 10 calls from the office of Rep. Ron Kind D-WI through Canada.
Brought down by an $11 billion accounting scandal, WorldCom is doing business under the brand name of its MCI long-distance division in a bid to restore its image.

WorldCom Inc. chief exec. Michael Capellas was told by SBC Communications Inc. 3 months ago that his co. was illegally avoiding millions of dollars in access charges, letters exchanged between the companies show. SBC exec. John Atterbury wrote to Capellas 4.15.03 & 6.12.03, informing him WorldCom, second-largest long- distance provider, was rerouting calls to avoid paying tariffs to use SBC's local-phone network. WorldCom atty James Lewis wrote back disputing the claims, according to copies of the letters obtained by Bloomberg News.

The letters show Capellas, who pledged to clean up the co., may have known of wrongdoing before U.S. Justice Dept began probe of co. call-routing practices. They may bolster efforts of WorldCom's competitors to derail its plan to emerge from the largest U.S. bankruptcy and add pressure to the U.S. govt to drop the co. as a supplier. "WorldCom is trying to rebuild trust, and from an ethics perspective this is not necessarily the best decision making," said DePaul Univ. business ethics prof. Laura Hartman in Chicago.
U.S. Atty NY office Friday subpoenaed documents from Ashburn VA based WorldCom as part of probe into tariff evasion. Capellas pledged to undo a culture that allowed $11 billion in profits to be overstated. Capellas said in a statement yesterday that the co. has begun its own internal analysis. "We have a zero-tolerance policy and if any wrongdoing is discovered you can be certain that we will take appropriate action swiftly," Capellas said.

"Michael has a solid track record of doing the right thing and time will prove that he continues to do so," said WorldCom spokesman Brad Burns. He said letters to Capellas were immediately forwarded to co. legal dept. Investigators are focusing on whether WorldCom, changing its name to MCI, avoided paying hundreds of millions of dollars since 1994 by disguising long-distance calls as local calls. Largest long-distance co. AT&T today filed papers in U.S. bankruptcy court alleging WorldCom fraudulently diverted calls to Canada to avoid access charges that were instead paid by AT&T.

Bedminster NJ based AT&T said it will file fraud & racketeering charges against WorldCom. Capellas, who took the position Dec. 2003, planned to steer WorldCom out of bankruptcy by Oct. 2003. 8.5.03 the co. seeks approval from NY bankruptcy court for reorganization plan after reaching $750 million SEC fraud settlement earlier this month.
"You want to be above not only any actual impropriety but any appearance of impropriety," Hartman said. "It doesn't look pretty." #2 local-phone co. San Antonio TX based SBC, AT&T and Verizon Communications Inc., which compete against WorldCom in local &Amp; long-distance service, said the company's assets should be liquidated. Under WorldCom's plan, the co. would exit bankruptcy with about $5 billion of debt, down from $41 billion before it filed for Chapt. 11 a year ago.

Verizon earlier today wrote to General Services Admin. Stephen Perry, urging him to suspend WorldCom's $1 billion of contracts with the govt. Calls made by the U.S. govt, WorldCom's biggest customer, were also routed through AT&T's Canadian network, AT&T said. Perry is reviewing co. contracts.
"The govt will face demands for restitution for benefits received from now on as a result of MCI's fraudulent use of the networks of other phone companies," Verizon's general counsel William Barr wrote in the letter.

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Global finance heads ponder rich-poor gap
9.19.03   AP Dubai, United Arab Emirates   Global economic leaders will discuss rebuilding Iraq and cutting off terror funds at a weekend summit, and an official said Friday the World Bank will push to narrow the gap between rich & poor nations. G8 finance ministers & central bankers also were expected Saturday to discuss concerns about the value of China's currency, viewed by many as too low against the U.S. dollar as China's huge trade surplus continues to grow.

As the top finance leaders hold their first such meeting in an Arab country over the next several days, World Bank pres. James Wolfensohn will urge a stronger commitment to giving developing nations better opportunities to catch up with developed countries, a bank official said. One focus of the money summit will be on rebuilding Iraq after the U.S.-led war, although good estimates for the costs aren't yet available.
U.S. administrator of Iraq L. Paul Bremer was to arrive Saturday, along with 10 other officials & Iraqi ministers, to join the talks, a U.S. Embassy spokesman said in Dubai. World Trade Organization talks' failure a week ago in Cancun, Mexico, highlighted that developing nations are banding together and demanding better deals from the wealthy West in the globalized economy, the World Bank official said.

Wolfensohn will be lobbying for ways to reduce the imbalances, the official said on condition of anonymity. IMF & G8 finance ministers, incl Treasury Sec. John Snow, see the global economy poised for its best growth since the 2001 recession, although some scattered problems, incl fast-growing U.S. budget deficit, could hinder the advance, according to bank forecasts.
New growth will also be affected by the less-secure world that emerged after 9.11.01 and subsequent U.S.-led invasions of Afghanistan & Iraq, IMF chief economist Kenneth Rogoff said Thursday. He cautioned that "this rise in underlying geopolitical uncertainties" could rein in economic growth, albeit slightly, over the next 20 years. G8 ministers are expected to reiterate their commitment to choking off terror funding. A key way forward, bank officials said, will be creating more jobs in MidEast, where unemployment remains chronic in many countries.

G8 ministers were working on a statement that would pledge to "strengthen the dialogue with other major economic areas to promote a smooth adjustment of international imbalances based on market mechanisms," an apparent reference to the Chinese yuan, according to a draft seen by the AP.
Beijing has faced growing calls to let the yuan, also known as the renminbi, or "people's money", appreciate, which might alleviate the threats posed by China's burgeoning trade surplus. The Chinese leadership has thus far balked at any such commitments.

World Bank chief scolds rich nations
9.23.03   AP

Dubai, United Arab Emirates   The World Bank opened its annual meeting Tuesday with a blistering attack on rich countries for spending hundreds of billions more on their militaries & their farmers than they do on helping the poor. "Our planet is not balanced," World Bank President James Wolfensohn told delegates from 184 countries. "Too few control too much, and too many have too little to hope for. Too much turmoil, too many wars. Too much suffering."
The failure of global trade talks this month in the Mexican resort of Cancun highlights the deep divide that must be overcome to create a stable future, Wolfensohn said in an opening address to the joint meeting of his bank & the IMF.

He criticized rich countries for providing just $56 billion a year in development assistance to poor countries, compared with more than $300 billion they spend on agricultural subsidies and $600 billion spent on defense. Nations have committed an additional $16 billion in aid by 2006, but Wolfensohn said poor nations could easily use twice as much. Rich nations balked at greater cuts in farm subsidies in the Cancun meeting and poor nations, who say their farmers suffer as a result, refused to proceed.
U.S. Treasury Sec Snow & other top finance leaders have been lobbying for a quick resumption of the World Trade Organization negotiations, arguing breaking down barriers to global commerce would benefit all. But Wolfensohn said wealthy nations need to do what they say. "It is inconsistent to preach the benefits of free trade then maintain the highest subsidies & barriers for precisely those goods in which poor countries have a comparative advantage," he said.

Finance leaders are worried about the massive American budget deficit, approaching a record $500 billion, but Snow called the spending "understandable" and pledged Tuesday that Washington will bring it down through a combination of economic growth and responsible spending. "It came about because of a recession and efforts to deal with a recession" Snow told delegates. Snow called it "Economics 101" that countries run a deficit to tackle a recession but said U.S. plans to slash its red ink in half over the next 5 years, bringing it below 2% of GDP.
IMF Managing Director Horst Koehler said Tuesday the increased U.S. spending had provided a stimulus to the global economy but called on Washington "to establish a credible framework for a return to a balanced fiscal position." Refusing to lay blame for global troubles entirely on the wealthy West, Wolfensohn said poor countries spend $200 billion on defense, more than they invest in education, which he called "another major imbalance."

The money summit, which wraps up here Wednesday, is the first such event held in an Arab country, and many delegates are calling that a good signal for the troubled region. The host country, United Arab Emirates, opened Tuesday's session with a call on intl community to help rebuild Iraq and to help bring peace in the Palestinian- Israeli conflict.
"The Arab world is a region of tremendous richness, diversity and potential," said Finance Minister Sheik Hamdan bin Rashid Al Maktoum. "This part of the world will not be able to realize its full economic potential until a just & permanent solution to the regional conflict is found and the intl community makes a serious effort," Sheik Hamdan said.
He cited "rays of hope" in Iraq, which is hoping to recover from decades of economic mismanagement under Saddam Hussein and U.N. sanctions that held back its crucial oil industry. Iraq has just announced a plan to establish a market-based economy with access to foreign investors in all segments but oil.

Poverty rate rises for second year in row
9.26.03   Genaro C. Armas AP

Wash.D.C.   Poverty rose and income levels declined in 2002 for the second straight year as the nation's economy continued struggling after the first recession in a decade, the Census Bureau reported Friday. The poverty rate was 12.1% last year, up from 11.7% in 2001. Nearly 34.6 million people lived in poverty, about 1.7 million more than the previous year. Median household income declined 1.1% between 2001 & 2002 to $42,409, after accounting for inflation. That means half of all households earned more than that amount, and half earned less.

The poverty rate rose again after having fallen for nearly a decade to 11.3% in 2000, its lowest level in more than 25 years. Income levels increased through most of the 1990s, then were flat in 2000 and fell the last 2 years. National Urban League research & public policy dir. Bill Spriggs said the numbers were frightening. "This may become one of the worst downturns in income in 30 years," he said. "We see that people are digging themselves deeper into poverty because the economy is not generating jobs."
Experts predicted rising unemployment last year and that still shaky economy would increase poverty and lower income for most people, even though the recession officially ended Nov. 2001. Bureau statistician Daniel Weinberg said the changes between 2001 & 2002 were consistent with changes following past recessions.
"The highest point in the cycle of poverty and the lowest point in income tend to come in the year after a recession," he said at a news conference at bureau headquarters in Suitland MD.

At the White House, the numbers were fodder for President Bush's aides to call for enactment of virtually his entire domestic & economic agenda, from increased involvement in federal programs by religious groups to trade policy and legislation limiting personal injury lawsuits. "The economy is moving in the right direction," Bush spokesman Scott McClellan said. "But the president is not satisfied. It's important to create the conditions for job growth and that's why the president continues to say that there's more that we can do."
In 2002, 12.1 million children were in poverty, or 16.7% of all kids, up from 11.7 million, or 16.3%, the previous year. The Census Bureau said the increase in the child poverty rate was not statistically significant. The estimates, calculated annually by the Census Bureau, came from a survey of 78,000 households taken in March. They are the government's official measure of income & poverty.

Comparing poverty rates & income for racial & ethnic groups was more difficult in 2002 because the Census Bureau for the first time allowed survey respondents to report if they were of more than one race. For instance, the poverty rate for blacks in 2002 ranged from 23.9% for those who identified themselves as being black and another race, to 24.1% for those who selected only black. Measured either way, the bureau considered that a significant increase from 2001, when 22.7% of blacks lived in poverty.

Poverty rates remained relatively unchanged for non-Hispanic whites, Asians and Hispanics, the bureau said. Median income fell for blacks & Hispanics, but was relatively unchanged for whites. Income was highest among whites & Asians. Incomes also declined significantly for foreign-born non-citizens, people living in metropolitan areas and for family households. By region, the Midwest experienced a significant decline, while all other regions were relatively unchanged.

The poverty threshold differs by the size & makeup of a household. For instance, a person under 65 living alone in 2002 was considered in poverty if income was $9,359 or less; for a household of 3 including one child, it was $14,480. A separate Census Bureau survey released earlier this month also showed more people living in poverty in 2002, along with a slight increase in median income. However, that survey did not ask as detailed a series of questions on people's financial status.
Even before the data was made public, House Democrats charged the Bush administration was trying to hide bad economic news by releasing the numbers on a Friday when people are paying more attention to the upcoming weekend. In previous years, the estimates were released on a Tuesday or Thursday.
"Sounds like they're trying to bury the numbers where people won't find them," said Rep. Carolyn Maloney D-NY "This is another clear example of political manipulation of data by the Bush administration to avoid the glare of public scrutiny about the country's worsening economy."

Census Bureau spokesman Larry Neal said the time change wasn't politically motivated. It was originally scheduled to be released this past Tuesday, he said, but was moved to Friday because statisticians asked for more time to process the numbers. "These are the official estimates of income & poverty in America and every debate on income & poverty for the next year will rehash them," Neal said. "The notion that we should, could or would suppress these numbers doesn't pass the laugh test."

U.S. poverty likely rose in 2003, income gap wider   8.19.04   Reuters

Wash.D.C.   More Americans likely slid into poverty in 2003 and the gap between the rich & poor widened, economists said on Thursday in a report that could fuel Democrat criticism of President Bush. While the nation's official poverty rate will not be released until next week, the left-leaning Center for Economic & Policy Research estimated 700,000 Americans were added to the ranks of the poor last year, based on early numbers.
That takes the number of poor in U.S. to about 36.4 million, from 35.7 million in 2002. The poverty line is set at an annual income of $9,573 or less for an individual, or $18,660 for a family of four with two children, according to the Census Bureau.

Using Census Bureau data for the first half of 2003, economist Heather Boushey said the%age of the U.S. population living in poverty rose to 12.8%, up from 12.7% in the first half of 2002. Children were even more likely to be poor, the study showed, with poverty rising to 18.8% of children in 2003 from 18.6% in 2002.
The poverty rate tends to track the overall economy, rising during a recession and falling in boom times. It has increased each year since 2000, sparking criticism from Democrats that Bush's economic policies are skewed to benefit the rich. But Bush's economic team has argued he inherited the 2001 recession from former President Bill Clinton, a Democrat, and that three rounds of tax cuts have since spurred the economy's recovery and kick-started job growth.

The official poverty rate is set for release on 8.26.04. Boushey said it will likely be slightly different than her calculation because it will include a full 12 months of data and is taken from a separate but similar Census survey. In past years, there has been only a slight gap between 6 months of one survey and a full year of the second. The study also showed the median household income rose 3.6% to $48,216 in the first half of 2003 from the same period in 2002, though when inflation is taken into account, incomes rose a smaller 1.1%.
Together with the rising poverty rate, the increase in the median household income suggests the gap between rich & poor is widening, Boushey said. "Families above the average are seeing an increase (in income), but the families at the bottom are seeing a drop," she told journalists. The report also found the number of Americans with health care coverage likely fell in 2003 for the third year in a row, as unemployment grew and employers cut back on health benefits.

The rich are getting richer while the poor remain poor. If you doubt it, ponder these numbers from the U.S., a country widely considered meritocratic, where talent & hard work are thought to be enough to propel anyone through the ranks of the rich.
In 1979, top 1 per cent of the US population earned, on average, 33.1 times as much as the lowest 20 per cent. In 2000, this multiplier had grown to 88.5.
If inequality is growing in the US, what does this mean for other countries?

Almost certainly more of the same, if you believe physicists who are using new models based on simple physical laws to understand distribution of wealth. Their studies indicate that inequality in market economies may be very hard to get rid of.
Economists will join physicists to discuss these issues next week in Kolkata, India, at the first ever conference on the "econophysics" of wealth distribution.
"We are interested in understanding whether there is some kind of social injustice behind this skewed distribution," says Sudhakar Yarlagadda of the Saha Institute of Nuclear Physics (SINP) in Kolkata.

It is well known that wealth is shared out unfairly.
"People on the whole have normally distributed attributes, talents and motivations, yet we finish up with wealth distributions that are much more unequal than that," says emeritus economics prof. Robin Marris at Birkbeck, University of London.
In 1897, a Paris-born engineer named Vilfredo Pareto showed that the distribution of wealth in Europe followed a simple power-law pattern, which essentially meant that the extremely rich hogged most of a nation's wealth (8.19.00 New Scientist p 22).

  … number of people having wealth W is proportional to 1/W^E. Pareto found that exponent ^E was always between 2 & 3 for every European country he looked at, from agrarian Russia to industrial England.
Up-to-date statistics show the same thing.

They found that while the income distribution among the super-wealthy, about 3 per cent of the population, does follow Pareto's law, incomes for the remaining 97 per cent fit a different curve, one that also describes the spread of energies of atoms in a gas

The analogy also holds because money is like energy, in that it has to be conserved.
"It's like a fluid that flows in interactions, it's not created or destroyed, only redistributed," says Yakovenko. Yakovenko also found that the total income of those in the poorer part of the distribution did not change significantly with time after accounting for inflation. But incomes for those in the Pareto curve shot up nearly five times from 1983 to 2000, before declining with the US stock market crash of 2001.

This, along with research data from other countries, suggests that there are two economic classes. In one, the rich grow richer while in the other the poor stay poor.
Yakovenko explains this by going back to the analogy of atoms in a gas. The atoms assume an exponential distribution of energy when they are in thermal equilibrium, and pushing the gas away from this state takes a lot of energy and it could prove similarly difficult to shift an economy to a different state.
Randomness in the model does, however, mean that individuals can jump from one class to another.

"It suggests that any kind of policy will be very inefficient," says Yakovenko. It would be very difficult to impose a policy to redistribute wealth "short of getting Stalin", says Yakovenko, who will talk in Kolkata next week.
A more sophisticated model developed by Bikas Chakrabarti of the SINP and his colleagues paints a slightly less bleak picture for the poor. His team adjusted the gas model to allow people to save various proportions of their money.

This model predicts both the wealth classes that Yakovenko found. It also suggests that if you save more you are more likely to end up rich, although there are no guarantees.
Changing people's saving habits could be an effective way of making the wealth distribution fairer, rather than enforcing taxes, says Chakrabarti, who is one of the Kolkata conference organisers.

Macroeconomist Makoto Nirei at Utah State University in Logan, whose own work will be presented at the conference, is supportive of the physicists' work but he has reservations about how they model the exchange of money.
"The model seems to me not like an economic exchange process, but more like a burglar process. People randomly meet and one just beats up the other and takes their money."
Other economists warn it is too early to use such models to inform policies.
"The models are too abstract," says University of Kiel economist Thomas Lux in Germany.
But Santa Fe Institute physicist J. Doyne Farmer in New Mexico points out that these models have their place: "Many economic theories don't even come close to producing the wealth distribution we see, and if you can't produce that you're dead in the water."

Fewer keeping the nation afloat   The income tax bites a shrinking proportion of Americans. That means fewer workers have a stake in the system and its future. 4.15.07   Kathy M. Kristof, Jonathan Peterson L.A. Times

Sue Carpenter pays about $6,100 a year in federal income taxes. But she might owe just half that amount if she had a mortgage, and nothing at all if she had minor children. The fact that Carpenter doesn't have these deductions makes her part of a dwindling group: U.S. taxpayers. An estimated 50 million Americans won't pay any federal income tax this year. That's nearly a third of all adults, up from 18% in 1980.

To many, the shrinking tax base is not a big deal. Most of the people who don't owe Uncle Sam are of modest means. They don't pay because Congress approved tax credits aimed at helping working families and sought to encourage homeownership by making mortgage interest deductible.
But then there are people like Carpenter. She's not rich, making about $58,000 a year working at the Dept of Motor Vehicles office in Commerce. She rents a small apartment in Los Angeles for $1,100 a month, so she doesn't have a mortgage she can use for a deduction.
"I don't think it's fair," said Carpenter, 61. "But we thrifty people don't get much sympathy."

Few would begrudge tax breaks for those who struggle to feed their children and keep a roof over their heads. But at the same time, some fear that the tax-free zone has grown too big and that too many working Americans no longer have a stake in the tax system or efforts to improve it.
"Many people would think if you are a citizen, you ought to have skin in the game, and we have more and more people with no skin in the game," said nonpartisan, conservative-leaning research group Tax Foundation pres. Scott Hodge. "From a social perspective, we ought to be concerned about that."

Still, no one expects a big change in the underlying trend, especially because tax breaks are one of the few things that Republicans and Democrats both embrace. Consider the earned income tax credit for low-income workers, which in some cases allows people to be paid more in "refunds" than they actually paid in taxes.
Republicans like it because it's a tax cut, not a spending program, and it rewards work. But Democrats like it too because the credit provides more than $30 billion in relief to low-income families. To be sure, it helps take millions of wage earners off the tax rolls. But a House Democrat was quick to point out that low-income Americans already shoulder a heavy load of taxes, payroll, sales, excise and others.

"Certainly, they're not keeping pace with people who are taking great advantage of the Bush tax cuts," said Rep. Xavier Becerra of Los Angeles, a member of the House Ways and Means Committee. Focusing on their light income tax payments, he said, gives "a skewed picture."
Indeed, wealthy Americans have benefited more than the poor from the tax cuts implemented under President Bush, said Tax Policy Center dir. Leonard E. Burman, Urban Institute sr fellow.

The very richest Americans, those in the top tenth of 1%, received tax cuts of more than 6% on average, he said. The bottom fifth of earners saw breaks of less than 1%.
"The benefits of the Bush tax cuts have been very tilted toward high-income people," Burman said.
Measures such as the earned income tax credit have been championed as a means of evening things out a bit. But the effect has been a dizzying array of credits and deductions that almost everyone agrees has made paying taxes numbingly complex.

In 2005, a White House advisory panel proposed an array of changes aimed largely at simplification, including scaling back the mortgage interest deduction that for generations had helped persuade renters to become homeowners.
The panel also called for eliminating deductions for state and local tax payments and restricting tax-free health insurance benefits for employees.
Predictably, the real estate industry, healthcare providers and dozens of other special interests rose up in protest. The proposals went nowhere.

"All the individuals and industries who had favored positions in the tax code screamed because they were going to lose all sorts of benefits," said former IRS commissioner Lawrence B. Gibbs who is now a partner at the Washington law firm of Miller & Chevalier.
Although major tax reform is no longer on the agenda, an emerging debate over the alternative minimum tax is intimately tied to the question of who pays taxes and how much.
The alternative tax was approved in 1969 to make sure that millionaires who exploited loopholes at least paid something. But for technical reasons, including the lack of provisions to adjust its formula for inflation, the alternative tax now has a much longer reach.

In the 2007 tax year, it could affect 23 million Americans, some earning as little as $50,000. That's up from about 4 million in 2006. House Democrats hope to shield taxpayers earning less than $200,000 from getting caught in the alternative-tax trap. But there would be a price. Under new budget rules, Congress would have to make up $1 trillion in lost revenue over the next 10 years to carry out such a fix to the alternative tax.
"They've had sort of a picnic in terms of tax cutting, and that picnic may be over soon," said liberal Economic Policy Institute economist Max B. Sawicky.

As one response, House Democrats are likely to scrutinize special tax breaks for business with an eye to weeding out "corporate welfare," Becerra said.
In addition, the Democratic majority has proposed a budget that may let some tax breaks expire when they come up for renewal in 2010, said House Budget Committee deputy chief of staff Chuck Fant. The Democrats are expected to maintain the child tax credit, deductions for state and local sales taxes and some others.

There is no shortage of provisions to examine. The list of credits, deductions and "income exclusions" stands at 146, up from 67 in 1974. The cost of these breaks have tripled over the period, from $240 billion to $730 billion after adjusting for inflation, a 2005 study by the Government Accountability Office showed.
Having a child, for example, once got you a "personal exemption" deduction, which reduces your taxable income by $3,300. That would save someone who paid 30% of their income in tax about $1,100. That same kid is worth far more today. In addition to the personal exemption, parents of young children get a "child credit" worth $1,000 in tax savings. If they send a child to day care so both parents can work, they get a credit to offset a portion of their baby-sitting costs too.

It gets better. If the parents can afford to set aside money to pay for their child's future college bills, they get to exclude the investment income as long as it's in a qualified plan. When that son or daughter goes off to college, the parents can choose one of three breaks, two tax credits and one deduction, to offset the tuition. Plus, there's a write-off for interest on student loans.

Homeowners have long been able to deduct their interest payments, regardless of need, and every decade or so the deal has been sweetened. In 1986, homeowners were allowed to deduct the cost of home equity loans of up to $100,000, no matter the purpose of the loan, even buying a car or taking a vacation.
In 1997, homeowners got the right to exclude up to $250,000 in gains on the sale of their residence. The deduction is for each owner, so a husband and wife who own a home together could exclude a combined $500,000 in gains.
This year, another break goes into effect. Homeowners will be able to write off the cost of private mortgage insurance.

Critics point out that deductions such as these don't necessarily go to the needy. But then, whoever said that was the intent?
"We have accepted the idea that our tax system is where we pay for welfare through the earned income tax credit," said former IRS commissioner Gibbs. "We pay for child care, for retirement and healthcare, education programs, homeownership, charitable contributions and investments through preferential rates on capital gains and dividends.
"We even collect from deadbeat dads through refund holdbacks," he said. "Nobody is really asking today whether that's fair. It's just the way it's being done."

The gap between rich and poor in many U.S. states has broadened at a quickening pace since the last recession, which could make it difficult for low-income families to weather the current economic downturn, according to a report issued today. The result is that the average incomes of the top 5% of families are 12 times the average incomes of the bottom 20%.

Since the late 1990s, average incomes have declined 2.5% for families on the bottom fifth of the country's economic ladder, while incomes have increased 9.1% for families on the top fifth, said the report from the liberal-leaning Center on Budget and Policy Priorities and Economic Policy Institute.

Some have criticized income inequality studies. Writing for the conservative Cato Institute last year, Alan Reynolds said tax-law changes skew the numbers. For example, executives once took stock options that were taxed as capital gains but now take nonqualified stock options that are taxed as salaries. Bernstein said that if the report had considered capital gains, the disparities would have likely been greater, as capital gains generally affect higher-income people.

plutonomics

If you pick up a starving dog
  and make him prosperous,

    he will not bite you.

      This is the principal difference
        between a dog and a man.

Mark Twain   1835-1910

The superrich are different from you and me. It's not just that they have more money. It's that they spend more. Much, much, more. In fact, the superrich spend so much more of their mountains of money, according to a new line of thinking among academics, that they may provide a public service by smoothing out the little dents and valleys in the global economy.
As scads of Russians, Chinese, Indians and South Americans have joined the billionaires club due to the rise of emerging markets' industrial might, worldwide recessions have become much fewer in number and far slighter in severity than in past decades.

Fortunately, there are plenty more than that in Russia alone. The swift rise in the value of natural gas, sometimes called "blue gold", as well as nickel, aluminum and titanium, has helped create at least two dozen Russian billionaires and thousands more multimillionaires who are spreading their wealth around.
Wall St Journal reports that the new "Blingsheviks" are buying castles in Germany, Warhol prints in New York and polo ponies in Argentina. One in five homes in London's exclusive Mayfair district are now owned by a Russian, according to the Journal.

A leader in this category is Roman Abramovich, the 11th richest man in the world, who has three yachts that stretch 161 feet, 282 feet and 377 feet, respectively, and who has commissioned a fourth that will eclipse the world's largest Arab-owned yacht, at 525 feet plus.
Sotheby's sold $3.65 billion worth of fine art at auction last year, 30% more than in 2005, and Russian art is a fast-growing category.

China, meanwhile, is now home to 500,000 millionaires who are proud to show off their gold-plated toilets, Versace-designed bedrooms and driveways loaded with BMWs, Escalades and Ferraris.
In India, where the economy is growing at 8% per year, BusinessWeek reports that 83,000 people are millionaires, up 16% from two years ago. To help them spend their fortunes, Louis Vuitton, Hugo Boss, Valentino, Gucci and Fendi have opened stores in the major Indian cities.

Here in the United States, the share of total income going to the richest 1% of Americans rose to a record 17.4% in 2005. Meanwhile, the average worker's take-home pay, adjusted for inflation, has advanced just 0.3% since 2001 while the economy has swelled by 16%.
If you exclude the value of primary residences, the United States has 2 million people with a net worth of over $1 million, according to Merrill Lynch; including primary residences, the number is around 8 million.

In addition to big yachts and big homes, the superrich are naturally into big jets, big vacations, big jewels, big art and lots of fancy clothes. If you're looking for an investment angle and conclude that you should focus on things that these folks buy, you're on the right track.
Obvious plays are jewelry retailer Tiffany, leather goods maker Coach and auctioneer Sotheby's, and all are trading at all-time highs. They'll all probably continue to do well in this environment, so if you don't already own them, by all means add them to your portfolio on dips.

A less well-exploited way to play the plutonomy is through the rapid advance of the sale and leasing of jet aircraft. What's the point of being a billionaire unless you can zoom from your home in Monte Carlo to a meeting in Berlin without ever scuffing your Ferragamos in a public airport.
In London alone, the number of private jet journeys has reached 300,000 a year and is growing by 10% annually, according to a published report. The king of the skies in the 10-seat category is the Gulfstream 550, complete with sofa, two beds and interior panels made from mahogany. No plastic allowed.

That and numerous cousins are made by a division of General Dynamics, which is a great buy right now at $77. With prospects bright both for private and defense jets, and valuation reasonable, shares should ascend to $100 over the next 12 months.
A much riskier name in the business is Canada-based Bombardier, which makes the Global Express jet owned by director Steven Spielberg and steel magnate Lakshmi Mittal. The plane can fly between any two points in the world with only one stop, and zooms from New York to Tokyo without a break.

A more unusual play on billionaires, and in my opinion potentially the best, are three recently floated companies that own fleets of jets and lease them to fractional ownership service providers, airlines, public companies and cargo haulers. Aircastle, based in Connecticut, sports a $2.3 billion market capitalization, owns 65 planes and pays a 5.6% dividend yield.
Genesis Lease, based in Ireland, is in the process of acquiring 41 aircraft from General Electric and has a commitment to purchase as much as $300 million more. It offers a 7.4% annual dividend yield.AerCap, based in Amsterdam, is a $2.4 billion company that owns around 300 planes and also manages and services planes on behalf of others.
Trading at $36, $26 and $28, respectively, they all have an opportunity to plug into the wave of global wealth and commerce to trade as much as 25% higher, with dividends, over the next 12 months.

New York   The economy is improving for the super rich. After 2 years of declines, total net worth of America's richest people rose 10% to $955 billion this year from 2002, according to Forbes magazine's annual ranking of the nation's 400 wealthiest individuals. Microsoft Corp. founder Bill Gates, who remained in the top spot, personified the trend toward increasing wealth. His fortune increased by $3 billion to $46 billion this year. Microsoft co-founder Paul Allen held third place, with his net worth rising $1 billion to $22 billion. Investor Warren Buffett kept the No. 2 position although his wealth was unchanged at $36 billion.

Forbes said the surge in collective net worth was largely due to gains in Internet stocks & tech fortunes. Amazon.com's Jeff Bezos saw his fortune expand by more than $3 billion to $5.1 billion as the stock of the online retailer skyrocketed. Bezos was the top gainer on the list, and holds spot 32. Yahoo! co-founder David Filo net worth nearly tripled to $1.6 billion, tying him with 13 others for the 126th spot. Yahoo!'s other co-founder Jerry Yang also nearly tripled his fortune, but he shared the 162nd spot on the list with 16 others with a $1.4 billion fortune.
The gains are part of a continuing shift in wealth from the East to the tech-centric West. When the list was first published in 1982, there were 81 members from New York and 56 from California. Today, California boasts 95 Forbes 400 members, while New York has 47. "There's been this enormous shift in the geographic distribution of wealth", Forbes senior editor Peter Newcomb said. Newcomb said the migration of high-tech businesses and their founders to the West is a factor in this change, but he also noted that many wealthy East Coast families such as the du Ponts & Rockefellers have been passing on their fortunes to members of younger generations.

The Walton family was again prominent on the list. 5 members of Wal-Mart founder Sam Walton's family tied for the fourth spot, each with a net worth of $20.5 billion. Rounding out the top 10 were Oracle Corp. chairman Larry Ellison with an $18 billion fortune and Dell Inc. chief executive Michael Dell with a net worth of $13 billion. Dell replaced Microsoft executive Steven Ballmer in 10th place. Ballmer is now No. 11 with a nest egg of $12.2 billion.
Notable drop-offs from the list include Global Crossing Ltd. founder Gary Winnick, whose co. is in bankruptcy, and Motorola Corp. CEO Robert Galvin, whose co. is suffering from the malaise afflicting the wireless & chip-making industry.
Daniel Ziff, 31, is youngest on the list. He inherited his $1.2 billion fortune. His father William Ziff Jr., built and sold a publishing empire. Oldest on the list is 95-year-old Max Fisher, who made his $680 million fortune through investments.

Newcomb said Forbes compiled its list by estimating the value of stock & other assets held by the wealthiest Americans. Forbes used the stock prices of publicly held companies as of the end of August; for privately held companies, the magazine estimated a fair market value based on the stocks of their publicly traded peers. Real estate & other assets also were included.
Where exact prices were not known, "we try to determine what a prudent shopper would pay for something", Newcomb said. "We try to be conservative with the estimates".

India's superrich get even richer
12.18.07   M.Sappenfield, A.Chopra Christian Sci. Monitor

New Delhi, Pune, India   The mansion of richest man in India Mukesh Ambani is something more than the average dream house. When construction is completed next year, his home will top 570 ft, equivalent of a 60 story skyscraper, and include a helipad, 6 floors of parking, and 600 servants for a family of 6.
Rising from a Bombay (Mumbai) neighborhood where rents run at $2,000 per sq ft, the home is a monument to the enormous wealth generated by India's stock market and how it has created a class of Indian superrich.

(In 10 months) since February 2007, the value of India's stock market has doubled to 20000 points, and the biggest winners have been India's richest. Based on these gains, India's four wealthiest men are now worth more than China's 40 wealthiest combined.
It is, in part, a quirk of South Asian business practices, where even the largest multinationals remain family-run enterprises with almost all their wealth and authority residing in one man. Yet some critics say it is also the result of India's inequitable investing laws, which are forcing small investors to the fringes.

As the stock market becomes a part of Indian cultural parlance, more investors further down the economic chain are finding ways to get involved. Yet the top-heavy distribution of India's stock-market billions is further amplifying the extremes of rich and poor in a country where an estimated 400 million people, more than the population of the United States, live on less than $1 a day.
"Most of the money in the market is still principally owned by the rich and by institutional investors," says research firm studying Indian investment patterns Invest India Market Solutions (IIMS) chair Chris Butel.

The result, he and others say, is that a very small number of people are accumulating fantastic wealth almost overnight. Ambani's fortune, estimated at $49 billion by Forbes, is built largely on the success of the stock of his company, Reliance Industries Ltd., which runs oil rigs and supermarkets, among other things. Last year, when stocks hit 10000, his wealth was one-quarter of its current total.
Likewise, the initial public offering (IPO) of Indian real estate developer DLF Enterprises earlier this year instantly made owner Kushal Pal Singh the world's richest property entrepreneur. Forbes puts his wealth at $35 billion.

All told, India's 40 wealthiest businessmen are worth $351 billion, according to Forbes, easily the most in Asia. Its four richest, steel tycoon Lakshmi Mittal, Ambani, his brother Anil Ambani, and Singh, hold more than half that sum.
It is partly the legacy of out-of-date laws governing stock offerings, says Mumbai-based market-research firm Prime Database founder Prithvi Haldea. When going public, India's largest companies need to make only 10 percent of their stock available to the public. Other Asian neighbors, such as Thailand and Malaysia, usually force a company to make available 25 to 40 percent of its stock.

News reports published in June suggest that at that time, company owners held 57 percent of the shares in India's largest stock market, the Bombay Stock Exchange, known as Sensex. Domestic and foreign companies accounted for a further 30 percent, leaving the remaining scraps for small, retail investors. That, in turn, has stunted the growth of the stock market among India's middle classes, says Haldea.

It is a blow to attempts to spread the wealth being generated by India's economic boom more equitably. Shares for the top 30 companies listed on Sensex gained $219 billion from January through November. By contrast, shares for the top 30 companies listed on Wall Street accumulated only $84 billion.
Yet only 3 million Indians from a working-age population of 321 million hold stocks. A further 3.5 million hold stocks through mutual funds. The numbers are small, and the money invested is also modest, says Butel of IIMS.

Nevertheless, there is evidence of a gradual expansion. The growth of the Indian economy is pushing more households past the threshold where they have enough cash to invest. Stories of Sensex riches are overcoming Indians' traditional fiscal caution. Sensex is a notoriously volatile index. Despite its upward trend, there have been dips, including Monday's 4 percent dip, largest in 4 months.
"This is the heart of the Indian story," says global consulting firm McKinsey and Company Mumbai office economic analyst Anu Madgazkar. "We do see this trend line going up dramatically."

There are currently 4 million households that make more than $10,000 a year, one marker of fitness for investing, she says. In the next 5 years, that number is expected to more than triple. IPO expert Haldea sees pent-up demand in the fact that the listing of Reliance Petroleum elicited 1.9 million applications for shares, the highest number in 5 years.
Such interest is no surprise to Vijay Kumar Stock Market Classes office manager Pradeep Moule in Pune. "The share market used to be back page news until a few years ago," he says, sipping ginger tea in his office. "Now, it's front page news."

He offers a two-week training program to make people Sensex-literate and he is seeing new interest in new places. Statistics suggest that investors are predominately from India's six largest cities; growing numbers of people from smaller cities now have the money but are ignorant of the way the market works.
"A few years ago, the popular perception was that this was only for the highly educated, financially savvy, English-speaking elite," says Mr. Moule. "That perception is now rapidly changing."

4 chief executives have lost their jobs in the last 8 days because of a scandal that, even by the standards of Wall Street, has proved especially hard for Main Street investors to parse. The activity in question, backdating stock options, is arcane and may not even be illegal. In this case, to borrow a phrase from politics, the coverup is worse than the crime.
Stock options were created to give executives and employees an incentive: The higher the company's share price, the more they got paid. In the typical options grant, the recipient receives the right to buy a block of stock one or more years later at whatever the shares are selling for today. The idea is to align the employee's interest with the shareholders'. The value of the grant goes up as the stock rises.

As millions of investors have learned in the last few years, however, stock prices do not always go up. And when they don't, stock options are worthless on paper and as an incentive. So companies hit on a new strategy.
Instead of giving executives the right to buy future shares at today's prices, they offered them the right to buy today's shares at yesterday's prices. The beauty of this policy was that companies could pick whatever yesterday they wanted. They could take the risk out of stock options.
This practice, known as "backdating," is not illegal as long as each grant is properly disclosed and accounted for. What's gotten so many companies in trouble is that they backdated in secret, not in public.

Some say the companies that engaged in backdating, many of which were technology firms, were trying to retain workers in a fiercely competitive job market. But if the goal was to retain employees, there was no need to hide the backdating. In fact, the companies would have been better off advertising the practice e.g. "We'll do whatever it takes to make your stock options valuable!".
More likely, the rationale for backdating was to avoid two hits to the bottom line. Unlike conventional options, which don't eat into co. profit, backdated options count as a charge against earnings. And for executives making more than $1 million, the co. expense of backdated options aren't tax deductible.

More than two dozen executives have lost their jobs in this scandal in recent days, including ones at UnitedHealth Group, McAfee, CNet Networks and Monster Worldwide. The Securities and Exchange Commission is scrutinizing more than 100 companies for options grants during the high-tech boom-and-bust years from 1998 to 2002, before a change in federal law made secret backdating more difficult. Shareholders won't be made whole until the companies and executives who avoided the discipline of the market finally come clean.

E*Trade (ETFC) finally rid itself of its former chief, but his departure didn’t come cheap. Mitchell Caplan, who stepped down as CEO in November as the struggling online broker lined up a huge capital infusion from Citadel, resigned Wednesday from E*Trade’s board.
E*Trade and Citadel booted Caplan after investors fled the stock amid worries about E*Trade’s liquidity, fears brought on largely by Caplan’s ill-considered foray into risky mortgage securities. E*Trade is still looking for a full-time replacement for Caplan and says it hopes to make a decision in the next month or two.

In the meantime, Caplan will be busy counting his money. He will get $10.9 million in cash, plus medical, life and disability insurance coverage, and reimbursement of certain legal fees. All this for a guy who steered the stock to an 84 percent decline last year, third-biggest decline among Fortune 1000 companies that retain their stock exchange listings.
“Mr. Caplan’s resignation from the board,” E*Trade’s press release says, “effectively severs all ties with the company.” Not a moment too soon, obviously.

AIG sues ex-CEO Greenberg for breach of duty
Insurer charges top execs misappropriated $20 billion in stock 3.27.08   Reuters

NYC   American International Group Inc has filed a complaint in New York Supreme Court against former Chief Executive Maurice "Hank" Greenberg and six other former directors and officers, accusing them of breaching their fiduciary duty. In the complaint, filed on Wednesday, AIG alleges Greenberg, former Chief Financial Officer Howard Smith and five others breached their fiduciary duty through "misappropriation of a special block of AIG shares worth approximately $20 billion in 2005."

The shares were held by Starr International Co Inc, a company that had been affiliated with AIG and had been used as a special compensation vehicle for chosen employees of the insurer.
Since Greenberg's 2005 ouster from AIG, amid an accounting scandal, he has retained control of Starr International, running the company as a private investment vehicle. Starr's 9.7 percent stake in AIG makes it the insurer's largest shareholder, according to current Reuters data.

Wash.D.C.   A record number of US chief executives have left office so far this year amid a growing govt investigation into stock options fraud, according to an industry survey. A total 1,347 American CEOs have departed the executive suite so far this year, surpassing the 1,322 chief executives who exited their offices in 2005, according to outplacement consultancy Challenger, Gray and Christmas Inc.

The majority of CEOs left office due to retirement or a resignation, but a rising number are being forced from office due to probes into stock options backdating.
"The options backdating scandal is spreading like a virus," Challenger, Gray and Christmas chief executive John Challenger said in a statement. "The 15 CEOs affected in the last 2 months may be just the tip of the iceberg. The scandal has also taken down chief operating officers, chief financial officers, legal counsels, vice presidents and board members," Challenger said.

8 CEOs left office in November because of stock options probes, compared to 7 who stepped down in October due to options investigations, according to Challenger's monthly CEO report. Justice Dept and SEC investigators are probing over 100 companies for possible stock option fraud violations.
Stock options are commonly granted to CEOs as a performance incentive. Backdating of stock options is not illegal if properly reported. However, it is improper to manipulate the date on which stock options are awarded or to grant such rewards without disclosing them as a proper business expense to shareholders in securities filings.
If options are manipulated to make it appear they were awarded on a date when a company's share price was at its lowest, an executive cashing in such a reward at a higher share price will bank a more lucrative return.

Top executives have been forced from office at computer security firm McAfee and online media group CNET Networks, while former officials at technology firms Brocade Communications Systems and Comverse Technology have been charged with alleged options fraud.
Challenger said it has recorded 54 backdating-related departures so far, including 17 CEOs, 11 CFOs and 8 company lawyers. The last year in which over 1,000 CEOs departed office prior to 2005 was during 2000, when the Internet bubble burst, according to Challenger. It started its survey of CEO departures in 1999.

Big perks put 7 CEOs in a whole 'other' club   Calif. exec. pay rpt : Insurance, forgiven loans, corporate jet travel and 'gross-ups' are key features of their million-dollar packages
6.6.04   E. Scott Reckard L.A. Times

A million bucks isn't a lot for chief executives today. But a million in perks during a single year is still rarefied company. At least 7 chief executives from California's 100 largest public companies pocketed $1 million or more last year in what financial statements classify as "other compensation," according to The Times' annual executive compensation survey. The category excludes salary, bonuses, stock options, restricted stock and other commonplace rewards. But it does include a grab bag of other perquisites such as insurance, forgiven loans, windfalls triggered by companies going private, special retirement payments and personal use of corporate jets.
Another benefit sloshed into the other-comp bucket is the "gross-up", a term applied when co. covers taxes executives otherwise pay on all those perks. Several California CEOs logged millions of dollars in gross-ups, bane of many shareholder & consumer advocates. "The most highly compensated people in the country would appear to me not to need any help settling their tax bills," said Web-based corporate governance research firm Corporate Library sr research associate Paul Hodgson.

As disclosed in their companies' SEC filings:

… More than 60 percent of home mortgages made in the United States in 2006 went into securitization trusts. Some $450 billion worth of subprime mortgages, those made to borrowers with weak credit, went into securitizations last year.

Fifteen years ago, the last time the housing market ran into stiff trouble, government-sponsored enterprises like Fannie Mae did most of the work pooling and selling mortgage securities. These enterprises readily agree to loan modifications.
But not so in the private issues pooled and sold by Wall Street, which has fueled the extraordinary growth in the market.

“Securitization led to this explosion of bad loans, and now it is harder to unwind and modify them even where it is in the best interests of both the borrower and the investors,” Chapman Univ. School of Law associate prof. Kurt Eggert (Orange CA)

"Mortgage maze may increase foreclosures"
8.6.07 Gretchen Morgenson NY Times

USA real estate to fall in term of the USA dollar
  excerpt   incl typographical errors corrected
circa 4.17.08   per Misquamicut Wave & Cycle Shop

… The high water mark for USA real estate prices in USA dollars was set in late 2005. As of March 2008,  prices of small houses are down 10 to 25 per cent and prices for large houses are down 20 to 50 per cent.
  … In 1895 a 1600 sf 2 story row house in Sidney St south side of Pittsburgh PA cost about $1,800 and carried no mortgage. A mill worker could save up the money to buy one. These houses rented for about $6 per week.
In 2005 these row houses sold for $320,000 and carried 90% mortgages. 

The price increase over 100 years was 125 times in USA dollars. There were no mill workers left in Pittsburgh by 2005.
The south side row house were bought by 2 wage earning families with help of huge mortgages.  The next question is who is going to buy the latest owners and their bankers out? Look at the data from