Mo Vaughn’s home runs

By Amanda Fung

Published: February 14, 2010 – 5:59 am

Mo Vaughn (right) and Eugene Schneur revitalized a drug-infested five-building complex in Brooklyn, and made it a decent place to live. Photo by Buck Ennis.

Six months after Mo Vaughn set up Omni New York in 2004, the fledgling real estate firm struck, snapping up a 286-unit affordable housing complex in the Bronx. By the end of its second year, Omni New York had tripled its holdings to a total of 869 units.

As far as most people were concerned, however, Mr. Vaughn was still a Mets first baseman, even though his baseball career ended in 2003.

“I wanted people to take us seriously and know that we were the real deal,” says Mr. Vaughn, who is seated at a Brooklyn eatery with his partner, Eugene Schneur, explaining his transition from baseball hero to real estate mogul—albeit one whose new uniform includes not just sharply tailored suits but large diamond-encrusted hoop earrings. “I wanted respect.”

These days he’s got it—not as the American League’s former MVP but as the managing director of one of the city’s best-regarded and most active buyers and managers of affordable housing. Along the way, Mr. Vaughn and company have earned a place as one of the city’s top choices for turning around distressed residential properties.

Today Omni ranks as a midsize firm capable of competing with the bigger players, swallowing up sprawling properties such as the decrepit 14-building, 416-unit complex in the South Bronx that Omni bought the mortgage on at a foreclosure auction—with the city’s blessing—in December. “Given their track record, they are ideally suited to deal with troubled projects,” says NYC Housing Preservation and Development Commissioner Rafael Cestero.

Since 2004, Omni has spent over $500 million buying and rehabilitating 21 affordable-housing buildings with a total of nearly 3,500 units in the Bronx, Brooklyn, Long Island and as far away as Wyoming. The majority of the buildings they own and manage are Section 8 buildings, whose low-income tenants rely on federal vouchers to help pay their rent. Omni finances its deals using tax-exempt bonds and the proceeds from the sale of low-income-housing tax credits.

Making money and doing good

That is exactly what it did when it acquired the Noble Drew Ali Plaza in the Brownsville section of Brooklyn—the 2007 deal that put Omni on the map. At the time, the five-building complex with 358 units was a haven for drug dealers and addicts, its hallways urine-soaked and graffiti-lined and its apartments crumbling.

Omni purchased the property out of bankruptcy for $23 million with financing from various city agencies, including HPD, as well as federal grants. The developer then poured $25 million into refurbishing everything from new elevators and energy-saving appliances to 326 security cameras. After two years of work, Messrs. Schneur and Vaughn capped off the revitalization by giving the complex a new handle: “The Plaza.”

“Noble Drew Ali, without a doubt, was one of the most complicated projects [we've seen],” says Mr. Cestero. “They restored it to a quality place for people to live by taking a very aggressive approach to renovating buildings.”

Today Mr. Vaughn, who played for the Boston Red Sox in the 1990s, spends most of his time on the operations side of the business, working with Omni’s construction, management and maintenance teams, while Mr. Schneur focuses on the dealmaking.

“I’m the eyes,” said Mr. Vaughn, who got his start in real estate by investing in Manhattan nightclubs with help from Mr. Schneur, then his attorney. “I make sure that everything that needs to get done gets done.”

In fact, Omni was his idea. In Ohio, where Mr. Vaughn spent his off-seasons, he met a developer successfully buying affordable housing using tax credits and decided to try the concept out in New York.

“They are smart people,” says Lisa Gomez, executive vice president of affordable housing developer L+M Development Partners. “They get how to do affordable housing and look to the double bottom line [of making money and doing good].”

Size doesn’t matter

But competition for distressed properties is increasing as the drought in luxury housing deals drags on. Meanwhile, the price of tax credits—a key currency in such deals—has plummeted by nearly a third, forcing Omni to scramble for more state and city subsidies to fill the gap.

“We used to be able to get deals done without subsidies,” says Mr. Schneur.

Omni’s rapid growth also presents challenges. By year’s end, it expects to have close to 5,000 units. For a firm whose two founders visited their early holdings as many as four times a week, the sheer scale of the portfolio now makes maintaining that degree of oversight difficult—even with the aid of a staff at its midtown headquarters that now numbers about 120.

“We can’t cut corners and be complacent,” says Mr. Vaughn. “If we continue to be humble and work hard, we will be fine.”

In fact, Mr. Vaughn and his partner are stepping up their act. Prior to the market collapse, Omni had been priced out of Manhattan. Mr. Schneur recalls one deal where Omni bid $20 million for a Manhattan building that went for $30 million.

Last month, Omni had better luck, buying its first Manhattan properties—two Section 8 buildings in Harlem with 53 units—for $5.5 million. Now, as a number of big, financially troubled properties, including Lawrence Gluck’s 1,230-unit Riverton in Harlem, make their way through foreclosure, they are weighing a bid. Even Manhattan’s vast middle-income oasis Stuyvesant Town-Peter Cooper Village looms as a potential target.

“Size doesn’t matter,” says Mr. Vaughn. “They fit within our philosophy of preserving decent affordable housing.”

Kennedy Death Cuts Broad Health Bill Odds, Hatch Says

By Nicole Gaouette

Aug. 30 (Bloomberg) — Congress is less likely to pass sweeping health-care overhaul legislation following the death of Senator Edward Kennedy, a leading Republican said.

“You’re not going to get this big, broad Democrat spending bill — you’re not going to get Republican support,” Senator Orrin Hatch, a Utah Republican and close friend of the Massachusetts Democrat, said on CNN’s “State of the Union” program.

Hatch said Kennedy’s status as Congress’s leading liberal often convinced Democrats they could support deals he had struck with Republicans. “That’s why Senator Kennedy was so important,” Hatch said. “I don’t know if another Democrat has the same clout in Congress.”

Expanding coverage to nearly 50 million uninsured Americans and lowering health-care costs was Kennedy’s life’s work, colleagues said, and is now President Barack Obama’s top domestic priority. Lawmakers failed to get health-care bills through Congress before the August recess. Obama, who is pushing lawmakers to overhaul a health-care system that accounts for about 18 percent of the nation’s economy, said Aug. 20 that “we’re going to get this done one way or another.”

Hatch said Kennedy provided deep experience on health care, united factions within the Democratic Party and worked well with Republicans.

Kennedy’s Work

“Kennedy could bring together all of the base groups of the Democratic Party,” Hatch said on ABC’s “This Week,” recalling that Kennedy worked on health legislation for more than three decades. “In every case, he fought as hard as he could, but when he recognized that he couldn’t get everything he wanted, he worked with the other side. If he was here, I don’t think we’d be in the mess we’re in right now.”

Kennedy’s illness meant he was absent from Congress for much of the past year, though his staff said he kept abreast of the health debate through frequent phone calls. Senator Christopher Dodd, the Connecticut Democrat who temporarily took over from Kennedy as chairman of the Senate Health, Education, Labor and Pensions Committee, told the panel that Kennedy was watching their debate on C-SPAN television and calling him daily to offer feedback.

Four of the five congressional committees with jurisdiction over health have passed bills that would cost about $1 trillion over 10 years. The Senate Finance Committee has stalled over a number of issues, including whether to create a government-run insurance plan, require employers to provide workers with insurance, and impose new taxes that could range from taxing the richest Americans to levies on generous health plans.

Public Plan

Not all Democrats support the idea of a public plan, which Obama has said would be his preferred way to generate more competition among health insurers. Louisiana Senator Mary Landrieu told CNN she would “tend not to” support a bill that included a public option. “I think we can do it without a public option,” the third-term Democrat said. “Hopefully we can keep working. That’s what Ted Kennedy would want us to do.”

John Kerry, now the senior Democratic senator from Massachusetts and a member of the Finance Committee, said he was confident a health-care bill would be passed and he urged Republicans to avoid being “bound by ideology.”

“When we get reality on the table we can have a good conversation,” Kerry said on the ABC program. “I believe we can do this. I think better judgment will prevail.”

Senate Bill

When the Senate returns in September, it will take up the bill the Senate health committee put together in July, Dodd said on NBC’s “Meet the Press.” He said the bill is “sitting there,” ready to be worked on with the Finance Committee.

“If we can get these bills together and sit down with each other, we can produce a strong, vibrant, vitally needed national health care legislation on accessibility, quality and affordability,” Dodd said.

Health-care costs now account for about 18 percent of GDP, according to the president’s Council of Economic Advisers, and are projected to rise to 34 percent by 2040.

“The country cannot afford this, Dodd said on CNN. “How we get there is the challenge before us.”

Senator Maria Cantwell, a Washington Democrat, said bipartisan cooperation on the issue was crucial. “Doing nothing and thinking that we’re going to get out of this expense is not an option,” Cantwell said on CNN’s “State of the Union.”

“Getting true competition into the system and giving consumers choice is what the Democrats and Republicans should be joining ranks on,” Cantwell said.

Democrats Alone

Democrats including Senator Charles Schumer of New York have said that if Senate Finance negotiators — three Republicans and three Democrats — can’t reach a deal by Sept. 15, Democrats may have to pass the bill on their own.

The majority party could use a legislative maneuver called reconciliation which allows the Senate to pass a bill with 51 votes instead of the 60 typically needed for controversial pieces of legislation.

During the August recess, Finance Committee Chairman Max Baucus convened meetings of the six senators on the committee who are working on a bipartisan compromise.

Any agreement they reach would have to be coordinated with a plan passed by the Senate HELP committee. The three House committees with jurisdiction over health will meld their bills together after lawmakers return from recess. The House and Senate bills would have to be reconciled before being voted on by both chambers.

Protests at Meetings

The Senate adjourned on Aug. 7 and will reconvene on Sept. 8. Many of the town hall meetings lawmakers held to discuss health-care during the recess were disrupted by protests.

Administration officials have urged lawmakers to honor Kennedy by getting health reform passed.

“The best possible legacy is to pass health reform this year,” Secretary of Health and Human Services Kathleen Sebelius said recently. “Hopefully every step along the way they’ll ask themselves ‘What would Teddy do?’”

Dodd said Kennedy’s death will push his colleagues to work harder at passing legislation.

“We don’t have the luxury of wallowing in our grief; we’ve got to get up and get this done,” Dodd said. “We’re going to roll up our sleeves and do what Teddy would have done and get health-care done.”

– With assistance from Jeff Plungis in Washington. Editors: Ann Hughey, Bill Schmick

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net.

U.S. payment-card industry grapples with security

By Ross Kerber

BOSTON (Reuters) – Fresh details of large-scale cyber attacks against data processor Heartland Payment Systems Inc and supermarket chain Hannaford Brothers show the challenges facing the efforts of the U.S. credit-card industry to upgrade security measures.

While both companies say their computer networks met the tough new standards meant to prevent data breaches, Visa Inc said Heartland at least may have let its guard down.

The positions reflect broader disagreements in the industry, as squabbling between merchants and financial firms over technology and the cost of systems upgrades continues to impede progress, said Robert Vamosi, an analyst for California consulting firm Javelin Strategy & Research.

“They both need to fight fraud and they are fighting each other,” he said.

The financial stakes are getting higher. Fraud involving credit and debit cards reached $22 billion last year, up from $19 billion in 2007, according to California consulting firm Javelin Strategy & Research.

The security of consumer information came under renewed scrutiny on August 17 when a 28-year-old Florida man, Albert Gonzalez, was indicted along with two other unnamed hackers for breaching the computer networks of Heartland and Hannaford, both of which said they were in compliance with security requirements.

Those standards were set by a council that includes the world’s two largest credit card networks, Visa and MasterCard Inc; fast-food leader McDonald’s Corp; oil major Exxon Mobil Corp; and big banks Bank of America Corp and Royal Bank of Scotland Plc.

All these companies face rising costs linked to fraud and its prevention. Of the 275,284 complaints received last year by the government’s Internet Crime Complaint Center, 24,775 were tied to credit or debit card fraud, up from 13,033 in 2007 and 9,960 in 2006.

Yet some 5 percent of the largest retailers and restaurants still have not met compliance deadlines set in 2007, according to Visa.

Even companies that meet the standards could be vulnerable should they lower their guard, Visa security executive Ellen Richey said last spring in a speech critical of Heartland.

“It was the lack of ongoing vigilance in maintaining compliance that left the company vulnerable to attack,” she said in March.

Merchants, for their part, complain via trade groups like the National Retail Federation that Visa and MasterCard are asking them to pay more than their fair share for security upgrades.

Some retail executives also say Visa and MasterCard have been slow to adopt better encryption technology and cards with high-security computer chips because of the associated costs.

“I can’t even tell you how many sour, disgruntled calls I get from retailers,” said Gartner Inc technology consultant Avivah Litan, who also works with banks.

GOVERNMENT REGULATION?

At Heartland, Gonzalez was charged with stealing more than 130 million payment card numbers, a record. Previously the biggest such hacking case was at TJX Cos Inc, where federal prosecutors last year accused Gonzalez and others of conducting an electronic break-in starting in 2005 that companies said compromised as many as 100 million card numbers.

Gonzalez, who is awaiting trial, has pleaded not guilty to the charges related to TJX, which had not met security standards at the time of the data breach.

This time, prosecutors say Gonzalez and his co-conspirators penetrated Hannaford and Heartland’s systems in late 2007 with code known as “structured query language,” which the security standards require companies to protect themselves against.

They also charged the ring breached systems at convenience store operator 7-Eleven Inc, roughly in August 2007. The company said the breach only affected transactions at automated teller machines owned by a third party at some of its stores, and wouldn’t comment further.

A spokesman for Hannaford, a unit of Belgium’s Delhaize Group, said an audit unit of Verizon Communications Inc showed it met the security standards.

Heartland said through a spokesman that its systems had been checked by audit firm Trustwave of Chicago as recently as April 2008 — about four months after prosecutors say the hackers began their theft.

The security standards represent “the lowest common denominator and the bad guys have figured out how to get around some of the weaknesses,” the spokesman said.

A Verizon spokesman confirmed it had audited Hannaford and found it to meet the standards, but declined to elaborate. A Trustwave spokeswoman said the firm wouldn’t comment.

Security is critical to Heartland because it processes card payments for merchants, and its stock dropped sharply in the two months after the attack was discovered.

In response, Chief Executive Robert Carr has tried to reassure customers and stepped up calls for better data encryption.

Ultimately, should the payment card industry fail to get its act together, it could face more government regulation, said Cynthia Larose, an attorney at Mintz Levin in Boston.

“If the stakeholders cooperate, we would see much better security,” she said.

(Editing by Matthew Bigg and Gerald E. McCormick)

Kennedy’s Death Opens Up Succession Debate

A torch extinguished: Ted Kennedy dead at 77

HYANNIS PORT, Mass. – The greatest heights eluded Ted Kennedy over a lifetime of achievement and pain. No presidency. No universal health care, chief among his causes.

Instead, Kennedy built his Washington monument stone by stone, his imprint distinct on the Senate’s most important works over nearly half a century. He toiled across the Potomac River from the graveyard of his fallen brothers.

The last of the Kennedys who fascinated the nation with their ambition, style, idealism, tragedies — and sometimes sheer recklessness — Edward Moore Kennedy died late Tuesday night at 77. A black shroud and vase of white roses sat Wednesday on his Senate desk, which John Kennedy had used before him.

So dropped the final curtain on “Camelot,” the already distant era of the Kennedy dynasty.

The Massachusetts senator‘s extended political family of fellow Democrats and rival Republicans, steeled for his death since his brain-tumor diagnosis a year ago yet still jarred by it, joined in mourning. Kennedy was the Senate’s dominant liberal and one of its legendary dealmakers.

Just last year he jumped into a fractious Democratic presidential nomination fight to side with Barack Obama, giving the Illinois senator a boost that had the air of a family anointment.

“For his family, he was a guardian,” Obama said Wednesday. “For America, he was a defender of a dream.”

The president, vacationing in Martha’s Vineyard, was awakened after 2 a.m. and told of Kennedy’s death. He spoke soon after with the senator’s widow, Victoria, and ordered flags flown at half-staff on all federal buildings.

Kennedy will be buried Saturday at Arlington National Cemetery after a funeral Mass in Boston, where Obama is to deliver a eulogy.

Kennedy will lie in repose at the John F. Kennedy Presidential Library and Museum in Boston before that.

Also buried at Arlington, the military cemetery overlooking the capital city, are John and Robert Kennedy; John Kennedy’s wife, Jacqueline; their baby son, Patrick, who died after two days, and their stillborn child.

To Americans and much of the world, Kennedy was best known as the last surviving son of the nation’s most glamorous political family. Of nine children born to Joseph and Rose Kennedy, Jean Kennedy Smith is the only one alive.

To senators of both parties, he was one of their own.

“Even when you expect it, even when you know it’s coming, in this case it hurts a great deal,” said Democrat Patrick Leahy of Vermont.

Politicians also calculated the consequences for Obama’s push for expanded health coverage. For several months, at least, Kennedy’s death will deprive the Democrats of a vote that could prove crucial for his signature cause of health reform.

His illness had sidelined him from an intense debate that would have found him at the core any other time. Conservative Sen. Orrin Hatch of Utah, his improbable Republican partner on children’s health insurance, volunteerism, student aid and more, said the Senate probably would have had a health care deal by now if Kennedy had been healthy enough to work with him.

“Iconic, larger than life,” Hatch said of his friend. “We were like fighting brothers.”

He was the last of the famous Kennedy brothers: John the assassinated president, Robert the assassinated senator and presidential candidate, Joseph the aviator killed in action in World War II when Ted was 12.

He lost his sister, Eunice Kennedy Shriver, less than two weeks ago, saw the bright promise of nephew John F. Kennedy Jr. end in a plane crash in 1999 and struggled with excesses of his own until he became a settled elder statesman.

Like Obama, Kennedy was a master orator. But the words that live for the ages seem to be those he uttered in tragedy or defeat.

Older Americans remember his eulogy of Robert Kennedy, when he asked history not to idealize his brother but remember him “simply as a good and decent man who saw wrong and tried to right it, saw suffering and tried to heal it, saw war and tried to stop it.”

Remembered, too, is his speech conceding the 1980 Democratic presidential nomination to the incumbent Jimmy Carter. “For all those whose cares have been our concern, the work goes on, the cause endures, the hope still lives and the dream shall never die,” he said.

By then, his hopes of reaching the White House had been damaged by his behavior a decade earlier in the scandal known as Chappaquiddick.

On the night of July 18, 1969, Kennedy drove his car off a bridge and into a pond on Chappaquiddick Island, on Martha’s Vineyard, and swam to safety while companion Mary Jo Kopechne drowned in the car. He pleaded guilty to leaving the scene of an accident; a judge said his actions probably contributed to the young woman’s death. He received a suspended sentence and probation.

Kennedy’s legislative legacy includes health insurance for children of the working poor, the landmark 1990 Americans with Disabilities Act, family leave and the Occupational Safety and Health Administration. He was also key to passage of the No Child Left Behind Education law and a Medicare drug benefit for the elderly, both championed by Republican President George W. Bush.

In the Senate, Republicans respected and often befriended him. But his essential liberalism marked him as a lightning rod, too. He proved a handy fundraising foil motivating Republicans to open their wallets to fight anything he stood for.

In 1980, Kennedy’s task of dislodging a president of his own party was compounded by his fumbling answer to a question posed by CBS’ Roger Mudd: Why do you want to be president?

“Well, I’m, uh, were I to, to make the, the announcement, to run, the reasons that I would run is because I have a great belief in this country,” he began.

It’s a question that all savvy politicians ever since make sure won’t catch them unprepared.

In his later years, Kennedy cut a barrel-chested profile, with a swath of white hair, a booming voice and a thick, widely imitated Boston accent. He coupled fist-pumping floor speeches with charm and formidable negotiating skills.

“I think that once he realized he was never going to be president — that that was not the legacy he had to follow — he really worked at becoming the best senator he possibly could,” Leahy said. “And he did.”

He was first elected to the Senate in 1962, taking the seat that his brother John had occupied before winning the White House, and he served longer than all but two senators in history.

Kennedy was diagnosed with a cancerous brain tumor in May 2008 and underwent surgery and a grueling regimen of radiation and chemotherapy.

He made a surprise return to the Capitol last summer to cast a decisive vote for the Democrats on Medicare. He made sure he was there again in January to see his former Senate colleague sworn in as president but suffered a seizure at a celebratory luncheon afterward.

His survivors include a daughter, Kara Kennedy Allen; two sons, Edward Jr. and Patrick, a congressman from Rhode Island, and two stepchildren, Caroline and Curran Raclin.

Edward Jr. lost a leg to bone cancer in 1973 at age 12. Kara had a cancerous tumor removed from her lung in 2003. In 1988, Patrick had a non-cancerous tumor pressing on his spine removed. He also has struggled with depression and addiction and recently spent time at an addiction treatment center.

___

Woodward reported from Washington. Associated Press writer Laurie Kellman in Washington, Philip Elliott in Oak Bluffs, Mass., and Bob Salsberg contributed to this report.

A Privileged World Begins to Give Up Its Secrets

About 10 years ago, when I was working in Frankfurt, Germany’s banking capital, I was invited to the top floor of the glittering skyscraper headquarters of one of the country’s most venerable banks. There, I was treated to something that, it was made clear to me, few eyes usually had the privilege of seeing — a tour of its private art collection, an impressive spattering of modern and ancient European and American masters.

The point was, those pictures reflected the bank’s wealth. And the fact the secretive treasures were kept forever behind closed doors for the enjoyment of the privileged few reflected its power.

If that seems like a different era, it is. Banks around the world are reeling, as we know; the European banks’ losses are among the most ruinous. And their prestige and putative secrecy and independence received a further blow last week, when the government of Switzerland agreed to release to the United States the names of 4,450 American citizens suspected of using secret Swiss accounts at UBS, the country’s biggest bank, for tax evasion.

The victory for the United States was made possible by evidence from an American-born whistleblower — code name Tarantula — a disgruntled former UBS employee from the Boston area who was working in Switzerland. Until he left the bank, he was part of a UBS team that made frequent trips across the Atlantic to aggressively market investment strategies to rich Americans to elude the scrutiny of the Internal Revenue Service.

But it would be wrong to see the settlement as a one-off strike against just one bank by a single government. It is in fact the result of a broader political moment created in the wake of the global financial crisis when disenchantment with financial globalization is causing governments to repatriate wealth back to within national borders, especially at a time when countries badly need to balance their books.

Just a few years ago, in the pre-crisis era, the shadowy workings of cross-border banking — and what may or may not have been happening there — were generally overlooked.

And, while some of the alleged tax evaders may be the war criminals, gunrunners or despots usually linked with secret foreign bank accounts, the target of the latest efforts are much more likely to include rich businessmen and high-net-worth individuals. “There is a political movement because of the financial debacle,” said one veteran European banker who insisted on speaking anonymously because he has retired. “They are turning toward the so-called rich and want to hurt them.”

Of course, the United States looks at it a bit differently. Prosecutors have contended that in the UBS case alone, wealthy Americans hid billions of dollars, thereby evading taxes of hundreds of millions of dollars a year.

While Switzerland is arguably the largest off-shore center, it is not the only one. Supporters of its banking secrecy code point out that the code is wrapped up in the country’s claims to neutrality and being above the global political fray. But secrecy has also turned out to be immensely lucrative; according to some estimates one-quarter of the world’s offshore money now resides in Switzerland.

Other countries or territories have copied the model — Liechtenstein, Bermuda, the Cayman Islands, Macao and Hong Kong among them. And while Switzerland is probably seen as the most conservative, blue chip, upstanding offshore haven, the others are measured by a sliding scale of probity and association with dubious business practices, if not crime. The European banker said that in the early 1990s, following the fall of the Soviet Union, he worked in Switzerland where he said agents of Russian expats would show up with “boxes of cash” from Cyprus, a popular haven for capital fleeing the Russian authorities and the country’s post-collapse chaos.

The backlash against this illicit world has not been confined to the United States; it is apparent across Europe, too.

France will become of one of the first European countries to put in place a new tax treaty with Switzerland to improve transparency and access to banking information. Germany is in discussions with Liechtenstein over issues related to tax evasion by German companies and individuals. Liechtenstein has also struck a disclosure agreement with Britain, encouraging British clients of Liechtenstein banks to volunteer information to British tax authorities in return for reduced penalties. In Italy, tax officials have started an investigation into whether the estate of the late Gianni Agnelli, the former chairman of Fiat, has money hidden away in Switzerland. In Britain, the government has become particularly exercised by tax competition — the offering of low tax rates and other advantages like tax secrecy to lure capital away.

In the Swiss settlement last week, the American authorities got the information they needed after they saw an opportunity in the weakness of UBS, a bank that once enjoyed a sterling global reputation but has suffered billions of dollars in losses linked to United States subprime securities and had to be saved by a big government bailout last October. For the Swiss government, the deal lifts the immediate threat of heftier legal action and frees the bank — one of the mainstays of the Swiss economy — to concentrate on recovery.

But will anything really change? Although the United States is supposed to learn the identities of a few thousand tax evaders, those names will go first to an intermediate tax administration in Switzerland for review. The actual process of recovering the names may become lost in bureaucracy and foot-dragging.

Moreover, as The Times reported last week, smaller Swiss banks say they are confident that they can continue to profit by finding new, more elaborate ways to protect the privacy of their clients. Those banks continue to help clients hide billions of dollars through complex structures in offshore havens.

But the I.R.S. commissioner, Doug Schulman, said the agreement with UBS was a “major step forward” in the government’s efforts to pierce bank secrecy, and he warned that “wealthy Americans who have hidden their money offshore will find themselves in a jam.”

In the new political climate, expect to see a few rich Americans shifting uncomfortably.

The Martha’s Vineyard Times

Mass in top 10 for stimulus spending

STATE HOUSE, BOSTON, AUG. 13, 2009…..The state, local governments and private entities in Massachusetts have received $4.44 billion and spent more than $2.02 billion, 45 percent, through the federal stimulus law, known as the American Recovery and Reinvestment Act.

That percentage of spending puts Massachusetts seventh among states in the rate of putting stimulus funds into the economy, Executive Office of Administration and Finance officials said Thursday. By the end of the life of the stimulus in fiscal 2011, the state expects to receive $9.22 billion for spending out of $514 billion doled out nationally, as well as $4.28 billion in tax benefits, compared to $272.52 billion nationally.

Testifying Thursday before the Legislature’s Committee on Federal Stimulus Oversight, budget officials said the federal funds had helped save budgets for important social welfare programs, spark infrastructure development and retain jobs. But “evolving” federal guidance has made it difficult to track the number of jobs created, they said.

Much of the funding has been used in the state budget, effectively preserving jobs that may have been cut.

Secretary of Administration and Finance Leslie Kirwan said stimulus spending was one facet of the Patrick administration’s effort to turn around the Massachusetts economy, which has seen tens of thousands of job losses and deteriorating tax collections in recent months. Other aspects include the state’s borrowing program, an accelerated bridge repair program, as well as investments in broadband, clean energy and life sciences.

Of the $2.02 billion in stimulus funds spent, state agencies are responsible for $1.47 billion, including $419 million for education, $1.02 billion for safety net programs, $12.4 million for public safety efforts, $8.1 million for labor and workforce development programs and $4.5 million for transportation programs. The rest flows directly into cities and towns, school districts and non-governmental entities.

Spending deadlines for hundreds of millions of dollars of transportation infrastructure funds have been met and exceeded, said Jeffrey Simon, director of the Patrick administration’s Office of Infrastructure Investment, which oversees much of the stimulus spending. Those deadlines included a 120-day window to spend $153 million on highway repairs – Massachusetts spent $191 million – and a 180-day timeframe to spend $159 million on transit – the state has spent $164 million as of two weeks ago – Simon said. If those deadlines had not been met, the state would have had to return the money to the federal government.

Administration officials said they were struggling to quantify the number of jobs created by ARRA funds because of “evolving” guidance for how to calculate job gains and job retention.

“We’re on version three now of directives from [the federal Office of Management and Budget],” Simon said. Simon pointed to an October 10 deadline for reporting such numbers, when the state hopes to have clearer guidance.

Sen. Marc Pacheco, who co-chairs the stimulus oversight committee, said he expected “a good news story” when those job numbers were available.

Kirwan later said she expected the numbers to show that “most likely thousands of local jobs” had been created or retained. She, as well as committee co-chair Rep. David Linsky, said the federal funds for safety net programs – food stamps, mental health services and others – had saved lives.

Since March 19, the last time Administration and Finance officials came before the committee to discuss stimulus funding, Simon’s office has hired two veterans of Attorney General Martha Coakley’s office to help oversee infrastructure spending. The two, Stephanie LeBlanc and Douglas Rice, who respectively serve as infrastructure assessment manager and compliance and reporting manager, worked on Big Dig cost recovery efforts for Coakley. Simon said hiring officials with that experience made “a statement” about the administration’s seriousness about ensuring that public dollars are spent wisely.

Kirwan told committee members the administration had hoped to evenly spread its stimulus funds through fiscal years 2009, 2010 and 2011, but steep deterioration in revenue collections moved state policymakers to frontload much of the stimulus spending to help balance the fiscal 2009 budget.

“When the governor first put this budget together for fiscal ’10, we had not yet experienced the revenue losses for April and June,” she said, noting that those two months saw revenues miss benchmarks by $500 million and $180 million, respectively. “At this time last year, we still had not lost a dollar of revenue. We did not until the middle of September last year have any loss of revenue.”

Comptroller Martin Benison also testified at the hearing, describing his office’s efforts to track and report on 34 separate grant awards overseen by OMB. Twenty departments – 16 executive agencies, two non-executive departments and two colleges – are responsible for administering those grants, which have totaled more than $500 million to date. Much of that includes a $412 million use of education funds to offset a fiscal 2009 local aid reduction.

Benison said his office holds weekly conference calls with stimulus stakeholders to coordinate reporting efforts.

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Young investors wary of jumping into market lows

By Erin Kutz

BOSTON (Reuters) – Young investors may accept the argument that those who begin investing when stocks are cheap end up with more retirement money, but after the turmoil of the past year, some find it hard to put their money in the market.

Asset managers and analysts say that those who invest in rock-bottom stocks of a bear market will see share values rise for decades.

But many in their 20s and early 30s are not buying rosy projections, due to immediate financial pressures and exposure to the longest recession since the 1930s Great Depression.

“I would keep all my money in cash,” said Alex Corbacho, a senior at Boston University.

The trend has some worrisome long-term implications. Stock brokers may find themselves largely shut out of a big customer base, and demand for equities will likely be crimped as investors favor safer havens, hurting the stock market’s prospects. It’s also unclear whether these young investors will have accumulated enough to fund their retirements when the time comes.

Corbacho is no stranger to markets. At age 13 he invested his birthday money and a matching donation from his father, $1,000 in total, in tech stocks only to feel the sting when the Internet bubble burst.

He carried the lesson with him in early 2008, after seeing signs of economic trouble as an intern at a Boston investment bank. He put the majority of his stock investments, which had reached about $5,000, into a certificate of deposit instead.

Corbacho doesn’t plan returning to stocks for a few years after graduation and is instead focusing on saving.

The recent market collapse has made holding cash for immediate expenses far more attractive to young people than investing, said Rodger Smith, managing director of Connecticut consulting firm Greenwich Associates.

“They are taken aback by how much they lost and how quickly they lost it,” Smith said.

The early exposure to such dramatic declines could restrain many from investing aggressively when they are older and have accumulated more money to put into the market, some say.

Asset managers, financial advisers and investors agree that young people will emerge from the financial crisis more educated, and more cautious, about managing their money.

“I do think they are taking a more practical and slightly more conservative view of the world,” said Michael Doshier, vice president of Fidelity’s Workplace Investing Group.

Corbacho said his generation should not expect to accumulate sudden wealth like some in the past.

“We might be a little smarter and a little wiser moving forward. We will have been more conservative and more observant and won’t have 65 percent of our life savings invested in equities,” he said.

Assets in U.S. retirement plans fell 22 percent in 2008 or nearly $4 trillion, with almost 75 percent of the drop in the second half of 2008, the Investment Company Institute found.

“These folks need to be resold on the idea that a 401k is a long-term investment,” said Smith, who oversees a profit-sharing plan for his firm and advises younger investors.

LONG-TERM CONCERNS

Financial advisers have long suggested that those further from retirement invest more heavily in equities, then switch to less risky assets as they near their golden years.

But the portfolios of those in their early 20s don’t reflect that advice. At Fidelity Investments, those 20-24 years old invest 31 percent of their 401ks in equities, compared to those 50-59 years old with 35 percent equities investments.

Overall, those saving for retirement have pulled back from stocks. In June, 48 percent of all Fidelity 401k participants were in equities, down from 53 percent a year ago.

Those in the investment industry say young investors should buy stock early and often.

“The key message is that it’s not a bad time for everybody,” said Christine Fahlund, senior financial planner at T. Rowe Price.

Ita Mirianashvili, a 35-year-old fellow at Massachusetts Institute of Technology’s Sloan School of Management, has confidence in long-term stock market prospects.

“I know the downturn cycle we are in will continue for some time but it will come back,” she said outside a MIT class that simulates a stock trading room.

But concerns about inflation, heavy government spending and rising bankruptcies has left many young investors uncertain.

“It’s still difficult to be bullish … for the long-run,” said Ashan Walpita, a 2009 Boston University graduate and former president of the school’s finance club.

Other short-term obstacles may hold young investors back. Employer-sponsored retirement plans often give people their first market exposure but with many graduates not finding work, they are yet to get started on making investments.

(Editing by Mark Egan and Cynthia Osterman)

Financial tech web plays arise from ashes of economy

Article Courtesy of:  MASS HIGH TECH

Former MIT computer scientist Jim Psota hopes that Panjiva can attract more gatherers of esoteric data to help serve traders.

When the world financial markets fell apart last fall, the prognosis was dire for startups bent on selling information technology to financial services firms. But entrepreneurs and investors in Massachusetts’ financial services IT sector didn’t blink: And now, three new companies founded or funded here are developing new models for both individual investors and data-driven money managers.

Panjiva Inc., a New York company with a Cambridge-based development team, is aggregating, cleaning and analyzing global trade data. Another New York firm, Covestor Inc., has taken funding from Boston-based Spark Capital for a service that allows users to automatically co-invest with other investors. A third company, Lexington-based StreamBase Systems Inc., has applied its real-time complex event-processing engine to the rising global tide of micro-blog posts on Twitter.

Providing investors with new sources of information, however obscure, remains a good business model, said Battery Ventures general partner Michael Brown, who invested in Panjiva. “When it comes to the guys who are managing money, it’s all about that little nugget of data that you can use,” he said.

Founded in 2007 by MIT computer scientist Jim Psota and former Boston Consulting Group associate Josh Green, Panjiva has taken in $5.5 million so far from Battery and a dozen angel investors. Its data sources include the U.S. Department of Homeland Security shipping records, reports from overseas factory inspectors, and a Chinese government insurer’s due diligence on eight million  companies. Last week, the company launched a partnership program designed to attract other gatherers of esoteric data relevant to trade.

The two originally envisioned a customer base of importers, but Panjiva has seen growing interest from the data distribution channels that target investor communities, Green said. Overseas factories often shutter with no warning, crippling a company’s supply chain. “To the investor community, there’s often little transparency about how much (supply chain) risk those companies are facing,” he said.

Last week, StreamBase, founded in 2003 by serial entrepreneur Michael Stonebraker, announced it had adapted its complex event processing system to support semantic analysis in real time on the stream of comments and dialog on the microblog sharing service Twitter.

“It’s pretty well understood on Wall Street that companies with the best data are going to make the most money,” said StreamBase CTO Richard Tibbetts. Changing trends in brand sentiment on Twitter may be the data point that influences a decision, he said.

Covestor hopes to capitalize on trends at the opposite end of the pool, where private individuals are disillusioned with Wall Street money managers. The company’s online service, launched last week, is designed to let investors piggy back on trades and investments made by a single other investor — who may or may not be a professional.

“Right now, you’re only able to follow the however many thousand professionals around the world,” said co-founder Perry Blacher. “We all know people we think are good at investing. Why can’t I invest alongside one of them?”

To navigate prohibitions against paying commissions to nonqualified, private investors, Covestor treats its record of investors’ trades as publishable information and charges a subscription fee, Blacher said. Followed investors receive $120 a year per subscriber, and the company itself reaps a fixed management fee of 0.5 to 1.5 percent.

Covestor is similar to existing services like the Motley Fool website’s Caps network, which lets investors share predictions — except it takes out the work of researching and making investments yourself, said Richard Gibble, director of the Hughey Center for Financial Services at Bentley University.

For investors chary of part-time day trading and mistrustful of Wall Street money managers, that “plug-and-play model” may be a compelling offering, he said. “The markets are complicated,” Gibble said. “Even if you know what you’re doing, it’s not easy to make money. Even for me, I like to think I know what I’m talking about, but it takes a lot of time. If you don’t have that time, you have to outsource it.”