“Government” Motors No More, but Taxpayers See a Loss

GMLast week, General Motors announced its intention to buy back 200 million shares from the Department of the Treasury, beginning the process of reemergence onto the market. The nickname Government Motors now stands to be retired following its use after GM received $51 billion under the TARP Recovery Act of 2009.

GM bought back its shares for $27.50 each for a grand total of $5 billion, which is an almost 8% premium on Tuesday the 18th’s closing price. Investors clearly see this as a positive move as trading jumped on GM shares by more than 7% on the announcement date.

The Treasury has plans to sell the remaining 300.1 million shares, equivalent to 19% of the company, starting as early as January to finalize its run as the controlling stakeholder. Currently, the Treasury has recovered $28.6 billion, over half of the original bailout from the once private company. However, the tax-payer may lose out in the end; in order to recover the remaining bailout amount- $21.6 billion- the remaining shares must sell for more than three times what they sold for today, about $72 each.

GM was not the only recipient of aid: its fellow Big Three automobile manufacturer Chrysler received a bailout and the government projected that between the two companies over 1 million jobs were maintained. Taxpayers must weigh the costs and benefits of the bailout between jobs supposedly saved and billions of dollars potentially unrecovered. Was there a net benefit or net cost to creating Government Motors? Due to unseen effects, the calculation may be nearly impossible.

Regardless, GM now stands for General Motors once again.

Posted by: Sophia Higgins

Sources: CNN Money, Reuters

Photo Credit: government motors @ photostream courtesy of Flickr user Fresh C


From AAA to AA: a Projection for the US following the Fiscal Cliff

AAIf the US goes over the fiscal cliff there will be more financial repercussions than $600 billion in expiring tax cuts and instant spending cuts. According to Fitch, one of the top three credit rating agencies in the world, the cliff will also cost the US its top rating of AAA.

The agency’s biannual report states, “If the negotiations on the fiscal cliff and raising the debt ceiling extend into 2013 and appear likely to be prolonged with adverse implications for the economy and financial stability, the US sovereign rating could be subject to review, potentially leading to a negative rating action.”

Standard and Poors infamously downgraded the US in August of 2011 to AA+ following a similar episode of partisan in-fighting over the debt limit. With a lack of communication on the Hill once again threatening the nation’s credit rating, an important measure for investors of economic health and stability, lies at risk.

The US economy is projected to contract by 5% if Congress does not avert this financial “dooms-day” but if they can, growth will slow to 1.5%. “A multi-year deficit reduction plan to stabilize U.S. debt and public finances [is] likely to see the country keep its AAA rating” and adopt the better of the two bad scenarios for US growth.

Congress should keep this in mind during the final days of negotiations as an added incentive to come to agreement. America’s future path hangs in the balance: will the decline be reversed and the AAA rating rightfully remain, or will the fiscal cliff and the subsequent AA+ downgrade occur? In less than 11 days the answer will be clear.

Posted by: Sophia Higgins

Sources: Reuters, the Hill

Photo Credit: From AAA to AA @ photostream courtesy of Flickr user fdecomite

Google’s Worldwide Anti-trust Woes- Coming to an End?

googleFor the past two years the Federal Trade Commission has investigated the possibly anti-competitive actions of mega-company Google. Now, the investigation may be coming to a close as the FTC issued its final ultimatum: Google must produce a detailed proposal listing voluntary concessions the company will make to resolve issues over its search engine practices.

Several competitors, the most infamous of which is Microsoft but also including Yelp and TripAdvisor, have alleged that Google searches prioritize searches not necessarily by relevance but to promote their own products. Furthermore, competitors are concerned over potential copyright infringements of Google’s “snippets” which show with preliminary results. Microsoft has launched the “Scroogled” campaign to educate online users on the anti-trust battle and to ultimately persuade the audience to use Bing’s search engine honesty.

From Google’s point of view, spokeswoman Jill Hazelbaker “the focus of Google is on Google and the positive impact our industry has on society, not competition”. They state that the order of search results is showcasing the best product available, which may put their own products over Bing or other rivals. They also state that regardless of the numberless ranking on the page, every site is equally one click away. Political proponents of Google, including several Democratic Senators have been outspoken on the issues, reminding the FTC that their job is not to protect competition but rather to aid consumers.

As Senator Ron Wyden of Oregon stated, it would be “troubling if the FTC sought to expand the use of its authority to target a company for simply being popular rather than engaging in unfair or deceptive practices that harm consumers.”

A similar anti-trust case is ongoing in Europe, which has offered Google comparable terms to end the need for a law suit. If Google’s proposal does not fit federal and EU expectations, the company could be charged up to 10% of the company’s value, or about $4 billion. Only time will tell the outcome of this case for Google, its competitors, and consumers worldwide.

Posted by: Sophia Higgins

Sources: Reuters, Time Business

Photo credit: Google @ photostream courtesy of Flickr user halilgokdal

United States Rejects UN Telecom Treaty in Dubai

Telecom TreatyThe United States on Thursday said that it would not sign the new ITU treaty aimed at Internet governance. The U.S. delegation at the conference in Dubai, led by Ambassador Terry Kramer, commented that there were “too many issues here that were problematic for us.”

The treaty is intended to govern how telephone calls and communications traffic is exchanged internationally. Though the treaty is not legally binding, the provisions surrounding Internet governance and content matters were opposed by the United States and several other governments such as the UK, Canada, and Sweden. The U.S. delegation further noted that the treaty should not be applied to Internet providers as well as private and government networks, but rather to traditional telecom operators. Though toothless, the treaty could set a future precedence on Internet governance that would be against U.S. interests, according to Mr. Kramer.

Technology trade groups, spearheaded by Google, warned early on about the danger of adopting the ITU treaty and its potential for leading to future censorship of the Internet. Other criticism of the treaty included the risk of creating an obstacle for innovation and increasing government regulations of the Internet.

Political leaders from both parties passed resolutions in the House and the Senate directing the U.S. government to oppose international efforts to increase ITU’s control over the Internet.  Other Western countries joined the U.S. in questioning why governments should meddle with the free flow of information on the Internet. Some of the most vocal nations in favor of the new treaty were China, Russia, Iran and the Gulf Arab states. In total, 89 countries signed the treaty; 55 did not. The conference showed the deep ideological rift among the 193 member nations of the UN.

The treaty will take effect in January 2015. It remains to be seen where the non-signatory countries will end up, many of which may yet sign the treaty. What is certain at this point, however, is that the future of the Internet, and how to govern it, will remain a hot debate topic in the coming months and years.

Posted by: Samuel Benka

 Sources: The Los Angeles Times, The Seattle Post Intelligencer, The Hill

Photo Credit:  ITU WCIT 2012 Courtesy of Flickr user veni markovski

Apple to start manufacturing in U.S.

appleRecently, Apple CEO Timothy Cook announced that the company plans to invest $100 million in manufacturing operations in the United States next year.

This sounds like great news for the suffering U.S. economy but whether this decision will be beneficial to the U.S. economy or if this is just part of a public relations strategy by Apple is yet to be seen. The $100 million Apple is investing in this new manufacturing transition only amounts to 1/100 of Apple’s profits from last quarter.  More and more, high-technology manufacturing is made by robots, therefore this investment wouldn’t necessarily be going to produce thousands of new jobs here in the United States. The number of employees that will be added to the payroll is a mere 200.

When comparing manufacturing costs in China versus the United States, Apple’s move makes sense. The benefits of bringing these jobs back to the U.S. is that the company will not have to deal with union demands, Chinese regulation, or disputes with other contractors. China leads with a 72 percent profit margin for production compared to the U.S. profit margin of 46.5.  Although this seems like a significant difference, 46.5 percent is still not too shabby and the long-term benefits could be worth the move. As China’s wage rates and currency rise, skilled workers grow scarcer, the United States still maintains a strong lead over the nation in terms of productivity.

With the rapid emergence of China, India, and other developing countries transitioning to “middle income nations,” the cheap-labor-for-exports model is losing ground. In the future, we will start to see companies target manufacturing in the same country where the product is marketed. Apple is also changing the view on manufacturing with a shift toward more automated manufacturing. The final assembly is the least complicated part of producing it but the company is seeking to have more of the initial components made in the U.S.

Regardless of whether this is a public relations ploy or a new economic strategy for growth, Apple is thinking ahead about manufacturing.

Posted by: Elizabeth White

Sources: Reuter’s, Bloomberg Business

Photo source: courtesy of flickr user afagen

Don’t let U.S. science and technology go off the “cliff” — ACS

Citigroup cuts 11,000 jobs

Tighten Your Belt - AusterityInternational financial conglomerate Citigroup announced on Wednesday, December 5th that the company will lay off 11,000 workers and take $1 billion in pre-tax charges to fourth-quarter earnings. Following the company’s official statement, Citigroup shares rose almost 4% so far on Wednesday morning.

Citigroup joins the ranks of big banks which have made major employee cuts in recent years: HSBC and Bank of America have cut 30,000 jobs, respectively, and UBS is set to cut 10,000 more positions from its rosters. Citigroup job cuts are focused in three sectors of the company, with 6,200 jobs eliminated from consumer banking, 2,600 jobs to be cut in operations and technology, and 1,900 jobs lost from the institutional clients branch. The cuts represent about 4% of the company’s total workforce. These actions represent an effort on the part of recently-appointed CEO Michael Corbat to streamline the third largest bank in the nation and to eliminate inefficiency.

“We have identified areas and products where our scale does not provide for meaningful returns,” announced Corbat. “We will further increase our operating efficiency by reducing excess capacity and expenses.”

In fact, Citigroup has predicted that the job cuts will lose the company money: about $300 million initially. However, Corbat then predicts that this loss will be balanced with a savings of $900 million in 2013 and about $1.1 billion each year after. He states, “These actions are logical steps in Citi’s transformation. While we are committed to – and our strategy continues to leverage – our unparalleled global network and footprint”.

Perhaps this new wave of drastic measures taken by businesses to remain above water will further motivate legislators to take the necessary steps to resolve the nation’s financial issues. With only weeks remaining before the impending fiscal cliff, these issues should be at the forefront of both legislators and constituent minds.

Posted by: Sophia Higgins

Sources: Forbes, Reuters, New York Times

Photo credit: Tighten Your Belt- Austerity @ photostream courtesy of Flickr user kenteegardin