Hedge Fund Shifts to Salvage Mode (NYTimes, 9/20/06)

September 20, 2006
Hedge Fund Shifts to Salvage Mode
By GRETCHEN MORGENSON and JENNY ANDERSON
A day after disclosing that a disastrous bet on natural gas prices had produced losses of more than $3 billion, Amaranth Advisors, once among the nation’s largest and hottest hedge funds, was scrambling yesterday to salvage something from its battered portfolio of energy trades.
Last night, as it had been since the weekend, Amaranth was locked in negotiations with several Wall Street banks and other hedge funds in an effort to sell its energy portfolio to try to keep the fund company afloat.
At the same time, it was working with commodity exchange officials to reassign trades to try to minimize disruptions to the market.
The fund’s investors, locked into their holdings by Amaranth’s stringent liquidation terms, awaited further word on the status of the fund’s holdings, while regulators and traders watched for signs that the hedge fund’s losses might disrupt markets beyond those relating to energy.
The losses at Amaranth have followed another blowup in natural gas at a smaller fund, MotherRock, but financial markets have hardly felt a murmur, largely because the volatility has been contained — so far — to a corner of the energy market, and is not tied to markets in stocks and bonds. And with so much investment money pouring into energy, it is likely that others profited from the billion-dollar losses.
Indeed, the effects have been fairly limited, confined mostly to the natural gas market. Amaranth’s portfolio, valued at $9.25 billion as recently as a few weeks ago, was apparently halved by a wrong-way wager that natural gas prices would rise, a bet that had produced enormous gains for the fund in recent years. Amaranth traders had reckoned that the difference, or spread, between the prices of gas futures in the months of March and April in coming years would increase. But rising gas inventories caused prices to decline, putting Amaranth on the wrong side of a brutal and accelerating market trend.
Officials at the New York Mercantile Exchange, where natural gas futures contracts trade, were matching up Amaranth’s trades with holdings of other market participants, neutralizing their positions. The exchange would say only that Amaranth’s account and the firm that cleared its trades were in good standing.
“The market seems to have recovered a little bit from the fall in price we had over the weekend,” said Kent Bayazitoglu, head quantitative analyst at Gelber & Associates, referring to natural gas prices. “It’s leveling out a little bit at $5, and the volume has fallen. It’s slowing down and accepting the prices.”
Last week, the market fell to $4.80, the lowest level since September 2004, according to Mr. Bayazitoglu.
But reflecting the liquidation of Amaranth’s positions, the spread on some gas futures declined further yesterday. The spread on prices for March and April 2009, a position held by Amaranth, fell 11 percent, to $1.55. In late August that spread had reached $2.85.
Amaranth had apparently not anticipated that natural gas storage capacity was rising, said David A. Pursell, a partner at Pickering Energy, a research firm based in Houston. Companies operating storage caverns have expanded capacity recently, and last week, government weather forecasters noted the development of El Niño, a weather pattern in the Pacific Ocean that usually augurs a warmer winter.
Officials at Amaranth, based in Greenwich, Conn., declined to comment yesterday on the status of the fund’s holdings.
Nicholas M. Maounis, Amaranth’s founder and chief executive, advised investors in an e-mail message on Monday that the fund had lost 35 percent of its assets and that it was liquidating energy holdings.
While hedge funds like Amaranth do not typically disclose the identities of their investors, some became apparent yesterday. Amaranth was a favorite of so-called hedge funds of funds, investment pools that buy into various portfolios to try to minimize risk.
For example, funds of funds operated by Morgan Stanley, Credit Suisse, Bank of New York, Deutsche Bank and Man Investments all had stakes in Amaranth, as of June 30, the most recent figures available. Those holdings, which ranged from 4 percent to 7 percent of the assets of the funds, are worth far less now than their stated values in June. Officials at those funds declined to comment yesterday.
Returns at Amaranth have been high in recent years. From September 2000 to November 30, 2005, a January offering memorandum states, the compound annual return to investors, net of all costs, was 14.72 percent.
Officials at Wall Street firms suggest that Amaranth has liquidated a significant amount of its positions in securities that are relatively easy to sell: convertible bonds, leveraged loans and even so-called blank check companies, or special purpose acquisition companies. Liquid investments have sold at a small discount; others, like portfolios of mortgage-backed securities, have commanded a steeper discount, people involved in these negotiations say.
Amaranth is still negotiating to sell its natural gas book, where the biggest losses are. Goldman Sachs was interested but pulled out. J. P. Morgan and other hedge funds appear to be looking at the books. Representatives from both banks declined to comment.
If Wall Street is not reeling from Amaranth’s woes, the fund’s investors surely are. As is common among hedge funds, Amaranth severely restricts investors’ ability to cash in their holdings. For example, investors can withdraw money only on the anniversary of their investments and then, only with 90 days’ notice. If they try to withdraw at any point outside that time frame, they face a 2.5 percent penalty.
Even more draconian, if investors redeem more than 7.5 percent of the fund’s assets, Amaranth can refuse further withdrawals, one investor said. The fund plans to conduct a conference call with investors this week, this investor said.
Investors said they were baffled by the apparent lack of risk management at the fund.
Officials at the Commodity Futures Trading Commission, the agency that regulates commodities markets, said they were “aware of what’s going on and taking the proper necessary steps to step up our surveillance.”
The commission collects information daily on trades and positions from clearing firms that operate on the Nymex. It also requires traders with large positions to report their holdings and can demand disclosure if it believes a trader is using several different accounts.
But depending on where Amaranth conducted its trades, the C.F.T.C. may get limited information on the hedge fund’s trading and holdings in over-the-counter markets. Regulators can require investment firms and traders with large positions in commodities to disclose their positions if they trade on the Nymex and other large futures exchanges. But Congress passed the Commodity Futures Modernization Act in 2000, limiting regulators in collecting information on over-the-counter markets, which have grown markedly in recent years.
Several lawmakers have sought to impose more oversight on energy trading but their efforts have not gained much ground.
As Amaranth grappled with its losses, résumés from its employees flooded Wall Street. And HedgeBay, a company that creates markets for hedge fund investors trying to buy or sell hedge fund stakes, has started a market for Amaranth positions.
The spread in that market — the difference between what a buyer would pay for Amaranth’s holdings and a seller would accept for them — was wide yesterday. Sellers were demanding 35 cents to 40 cents for every $1 invested while buyers offered to pay 10 cents to 20 cents.
No trades have been done yet. “People are trying to wait for the dust to settle,” said Jared Herman, the co-founder of HedgeBay. “It’s a fluid situation, and the phones are ringing off the hook.”
Vikas Bajaj contributed reporting.

Japanese Fret That Quality Is in Decline (NYTimes, 9/21/06)

September 21, 2006
Japanese Fret That Quality Is in Decline
By MARTIN FACKLER
TOKYO, Sept. 20 — Perhaps only in Japan could a television series like “Project X” have become one of the most popular TV shows. No, it isn’t a science fiction thriller. It’s about product quality.
More specifically, it’s about a bunch of corporate engineers whose hand-held calculators and ink-jet printers helped turn this nation into an industrial powerhouse.
So it is little wonder that a recent surge in recalls of defective products has set off national hand-wringing and soul-searching here, in radio talk shows, on the front pages of newspapers and in the hushed corridors of government ministries.
Even in local noodle shops, the conversation turns to the bruised pride and fears that Japan may be losing its edge at a time when South Korea and China are breathing down its neck.
“Craftsmanship was the best face that Japan had to show the world,” said Hideo Ishino, a 44-year-old lathe operator at an auto parts factory in Kawasaki, an industrial city next to Tokyo. “Aren’t the Koreans making fun of us now?”
“It took us years to build up this reputation,” Kazumasa Mitani, 32, a co-worker, chimed in. “Now we see how fast we can lose it.”
This, after all, is a country that has been obsessed with perfection. Tokyo’s sprawling subway and train networks run like clockwork, accurate to the minute. Television factories assign workers with rags to wipe down every new set, lest a Japanese consumer find a single fingerprint and return it. In supermarkets, many apples and melons are individually wrapped in protective plastic foam.
In the last two months, the national angst increased after large-scale recalls of defective products made by Toyota and Sony, the country’s two proudest corporate names. In the United States, product recalls occur so frequently that most are barely noticed. But here, they have created something of a crisis in a country where manufacturing quality is part of the national identity.
The fingers have no main culprit to point to. Some say young Japanese are too lazy. Others say American-style management is to blame.
The spate of bad news has not stopped. Just this week, Sony suffered another blow when Toshiba announced that it was recalling 340,000 Sony-made laptop batteries, after last month’s recalls of 5.9 million batteries. And Toyota, which has experienced a soaring number of recalls in recent years, said Wednesday that it would hire 8,000 more engineers to strengthen quality.
Some here admit that Americans may find the fuss perplexing. But Japan is the country that elevated the American quality guru W. Edwards Deming to virtual sainthood and conquered global markets with its eminently reliable cars, cameras and computers. For a time, American and European executives even flocked here to learn Japanese quality-control concepts like “kaizen,” meaning “improvement.”
World-leading craftsmanship became so central to the nation’s self-image that many Japanese seem to have trouble imagining their country without it. The recalls are discussed here in the same breath as Japan’s rising rates of crime and juvenile delinquency and other signs that the country’s tightly woven social fabric may be starting to fray.
In the news media, Sony’s and Toyota’s quality problems have frequently topped coverage of wars in Iraq and Lebanon. And Nihon Keizai Shimbun, the leading economic daily, began a front-page investigative series this month called “Can Japan Protect Quality?”
“Toyota and Sony have been a wake-up call that something is amiss in Japan,” said Takamitsu Sawa, an economics professor at Ritsumeikan University in Kyoto. “Japan seems to have lost something important on the way to becoming a developed country, and many Japanese want to get that back.”
One of those is Toshihiro Nikai, Japan’s trade minister, who twice last month took unusually blunt steps in this nation that normally recoils from confrontation. He sent letters to executives from Sony ordering them to report on quality-control improvements after back-to-back recalls by Apple and Dell of faulty Sony-made laptop batteries. Sony promised to comply and diligently sent employees to receive the letters by hand. It was the first time such orders had ever been issued to Sony.
“This is very rare,” said Atsuo Hirai, assistant chief at the trade ministry’s information product safety section. Rarer still was the fact that a few weeks earlier, the transport ministry issued similar orders to Toyota.
Hiroshi Okuda, the retired chairman of Toyota and elder statesman of Japan’s business world, called on his countrymen to do more about what he saw as the declining competitiveness of Japanese manufacturing.
“Japan lacks a sufficient sense of crisis,” he warned last month.
The sense of crisis has moved even into the classroom.
In Japan’s schools, once lauded for their hard-working students and sharp-penciled test takers, test scores have fallen recently below those of countries like Singapore, South Korea and Finland. Dozens of educators at elementary and high schools across Japan are sounding alarms about declining standards.
At Ritsumeikan Elementary School in Kyoto, the aim is more discipline and memorization, so students now stand at attention every morning to recite in unison parts of ancient Confucian texts and other classics. They are timed to see how quickly they can regurgitate multiplication tables.
“More self-control leads to a better work ethic,” says the school’s principal, Hideo Kageyama, who has written more than 30 drill workbooks, which he said have sold four million copies since 2002. “Our society’s future is at stake.”
To be sure, Japanese companies continue to dominate production of many high-tech products, from digital cameras and color copiers to solar cells and the delicate optics used to etch circuits onto most of the world’s computer chips. And despite its problems, Toyota still appears on track to dethrone the flailing General Motors as the world’s largest carmaker in the next year or two.
“They’ll learn from their mistakes,” said Yuji Fujimori, an electronics analyst in Tokyo for Goldman Sachs.
Still, Sony’s problems have not been limited to batteries. The company worked furiously over the summer to resolve problems in production of its PlayStation 3, its widely awaited game console, which is due out in November.
“If asked if Sony’s manufacturing ability has declined, at this point today I have to say yes,” said Ken Kutaragi, chief executive of Sony’s video game division.
Various reasons crop up as possible explanations for declining quality. Universities bemoan that new students are more interested in literature and the liberal arts than engineering. Applicants to engineering programs are down to 8.7 percent of all university applicants this year from 12.3 percent eight years ago.
“In the old days, there were a lot of students who wanted to join the front lines of manufacturing, and really gave it their all,” said Chitoshi Miki, an executive vice president in charge of student education at the Tokyo Institute of Technology, one of the nation’s top engineering universities. “Now, no one even wants to break a sweat.”
Others have begun to blame recent American-style management changes, like the end of traditional lifetime job guarantees. Fujitsu, the electronics maker, has backed away from basing salaries on individual performance, saying it hurt employee morale and undermined team work.
As Japan wrings its hands, say some economists, Asian competitors have been closing in. Lee Kwang Hoon, an electronics analyst at Hanhwa Securities in Seoul, said that the recall of Sony-made batteries could offer an opportunity for the biggest Korean makers, Samsung and LG, to rival Sony in market share.
“The biggest change may not be that Japan has dropped in quality,” said Masaru Kaneko, an economics professor at Keio University in Tokyo, “but that Asia is catching up.”

Retailers See Strong Sales for Holidays (NYTimes, 9/19/06)

September 19, 2006
Retailers See Strong Sales for Holidays
By MICHAEL BARBARO
The holidays may not be so bad after all.
After months of hand-wringing over higher gas prices and a sluggish housing market, which threatened to reduce spending in the crucial November-to-December period, the nation’s retailers are beginning to talk about an above-average shopping season.
No one is predicting a blockbuster Christmas — those seem to have ended in the 1990’s — but as gas prices slip back into the $2-a-gallon range and the hurricane season passes without calamity, there is a growing optimism that consumers will return to the mall, even without the lure of deep discounts.
When the National Retail Federation, the industry’s largest trade group, releases its annual forecast for the holiday season today, it will predict a sales increase of 5 percent, to $457.4 billion, compared with last year.
It is a respectable, even strong figure, well above the industry’s performance from 2000 to 2002, when retailers did not book gains of more than 3.4 percent, but it falls short of the last two seasons, when they achieved increases of more than 6 percent.
“The worst of it is over,” said Tracy Mullin, the trade group’s president. But even Ms. Mullin quickly cautions that consumer spending will “not be robust.”
It is a conflicted sentiment shared by industry leaders, who in interviews over the last week described consumers as at once worried about housing prices and relieved by gas prices, as pulling back on expensive purchases but ready to indulge on smaller products.
Clearly, executives are not done worrying.
Myron E. Ullman, the chief executive of J. C. Penney, said the “economic climate is not robust and our customer is more cautious,” though he noted the company was in a strong position.
Robert L. Nardelli , the chief executive of Home Depot, said there would be “a lot of uncertainty” in the housing market for the second half of the year and he saw no quick relief. “I can see it going a little longer than others” do, he noted, referring to the housing slowdown.
But even the most cautious executives said that lower gas prices, should they remain stable, would create an opening for retailers. According to Wachovia Securities, gas prices at the pump have declined roughly 13 percent over the last six weeks, to $2.60, after reaching about $3 at the beginning of August.
“For the first time in a while, most management teams say the consumer is alive and well and spending,” said Gabrielle Kivitz, a retailing analyst at Deutsche Bank Securities, after a round of meetings with executives at clothing companies.
For much of the last year, gas prices have become a favored explanation for lackluster sales, popping up in quarterly earnings reports from chains as varied as Wal-Mart, Ann Taylor and Federated Department Stores, which owns Macy’s and Bloomingdale’s.
And even though they have begun to fall, gas prices will still have a noticeable influence on retailers over the next three months in the form of lean inventories. Because stores planned for higher gas prices, they cut back on the size of their orders to avoid a glut. The result is likely to be less reliance on last-minute discounts to sell extra merchandise, which became pervasive last year.
“Retailers have planned very conservatively,” said John D. Morris, an analyst at Wachovia Securities who has long tracked markdowns in clothing chains. “Six weeks ago, when chains ordered for the season, things were cloudy. Now there is improvement.”
But lean inventories, while protecting profits, will not deliver strong sales. Must-have products will — and, so far, none have emerged.
The iPod and its caravan of accessories are still expected to be top sellers this season, and analysts believe the latest iteration of the Elmo doll, a closely guarded secret set to be unveiled before Christmas, will invigorate the toy business.
But there is no clear hot fashion in the clothing world. Several analysts predict that high-priced denim, the fail-safe clothing selection over the last five years at stores ranging from American Eagle Outfitters to Barneys, may have finally run its course, leaving stores to scramble for a replacement.
“Denim is performing poorly and everyone is expecting it to be down,” said Ms. Kivitz, who noted that Abercrombie & Fitch, one of the most popular names in teenage clothing and a major player in the denim business, had put an emphasis on tops, rather than bottoms, for back-to-school.
Perhaps formality is making a comeback. “Dresses,” Ms. Kivitz said, “will be a very important category.”

A Hedge Fund’s Loss Rattles Nerves (NYTimes, 9/19/06)

September 19, 2006
A Hedge Fund’s Loss Rattles Nerves
By GRETCHEN MORGENSON and JENNY ANDERSON
Enormous losses at one of the nation’s largest hedge funds resurrected worries yesterday that major bets by these secretive, unregulated investment partnerships could create widespread financial disruptions.
The hedge fund, Amaranth Advisors, based in Greenwich, Conn., made an estimated $1 billion on rising energy prices last year. Yesterday, the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was working with its lenders and selling its holdings “to protect our investors.”
Amaranth’s investors include pension funds, endowments and large financial firms like banks, insurance companies and brokerage firms. The Institutional Fund of Hedge Funds at Morgan Stanley was an investor in Amaranth; as of June 30, it had a stake valued at $124 million. The turnabout in the fortunes of the $9.25 billion fund reflects the decline in energy prices recently; natural gas prices fell 12 percent just last week.
Yet also last week, Charles H. Winkler, chief operating officer at Amaranth, had met with prospective investors at the Four Seasons restaurant in Manhattan and reported that his fund was up 25 percent for the year, according to a meeting participant. Days later, rumors began circulating that Amaranth was losing money in one of its natural gas bets, a trade that had generated enormous profits for the fund in recent years.
Late in the week, the fund’s traders began dumping large stakes in convertible bonds and high-yield corporate debt, securities that could be sold without disrupting the market.
Mr. Winkler did not return a phone call seeking comment.
The scale of Amaranth’s losses — and how quickly they appear to have mounted — was the talk of Wall Street yesterday, as was speculation on how much the bet was leveraged, or made on borrowed money. Still, there were no signs of ripples on the financial markets as a result.
Amaranth’s woes are largely the result of a decline in natural gas prices that began in December, well before the spring months of March or April, when they typically fall off. Amaranth’s biggest stake was a combination bet on the spread between natural gas futures prices for March 2007 and those for April 2007. Amaranth had often bet that the spread on that so-called shoulder month — when natural gas inventories stop being drawn down and begin to rise — would increase.
But instead the spread collapsed. In the last six weeks, for example, the spread between the two futures contracts ranged from $2.50 at the end of July to around 75 cents yesterday.
Traders briefed on Amaranth’s problems, including one person who examined the fund’s books yesterday, said that the losses might be considerably larger than the firm estimated. Over the weekend, according to one person briefed on the situation, Goldman Sachs examined the fund’s positions.
Amaranth is not the first hedge fund to experience problems in energy markets. MotherRock Energy Fund, a $400 million portfolio, shut down last month after losing money on its bets that natural gas prices would fall. Summer heat sent prices soaring and the fund lost 24.6 percent in June and 25.5 percent in July, according to one investor.
The natural gas market is exceptionally volatile, making it an ideal playground for hedge funds that thrive on wide price movements in securities. Natural gas prices are subject to more severe swings than oil, in part because gas cannot be stored easily.
Arthur Gelber, the founder of Gelber & Associates, an energy advisory and consulting firm based in Houston, said that as a result, the natural gas market was about five times more volatile than the stock market.
The greatest demand for natural gas occurs during very hot or very cold weather, Mr. Gelber said. During mild periods, like early autumn, an oversupply of natural gas can cause a significant decline in price. Hedge funds have added to this natural volatility, he said.
Amaranth was founded six years ago by Nicholas M. Maounis, a former portfolio manager who had specialized in debt securities at Paloma Partners, another large hedge fund. Amaranth employs a so-called multistrategy approach to investing that allows nimble portfolio managers to seize opportunities in whatever markets seem to be most promising at the time.
Now that Amaranth has owned up to huge losses in a single sector, “multistrategy’’ seems to have been a misnomer at the fund.
In his letter to investors, Mr. Maounis, 43, wrote: “In an effort to preserve investor capital, we have taken a number of steps, including aggressively reducing our natural gas exposure.”
Amaranth has additional offices in Houston, London, Singapore and Toronto and employs 115 traders, portfolio managers and analysts, according to its Web site. The firm deploys capital “in a highly disciplined, risk-controlled manner,” it noted.
Its energy portfolio has been overseen by Brian Hunter, a trader who joined the fund from Deutsche Bank in 2004 and conducts trades from his hometown of Calgary, Alberta. Mr. Hunter made enough money at Amaranth in 2005, an estimated $75 million to $100 million, to place him among the 30 most highly paid traders in Trader Monthly magazine.
Rocaton Investment Advisers, a consulting firm in Norwalk, Conn., whose clients have $235 billion in assets, recommended Amaranth to its customers. Yesterday, Robin Pellish, Rocaton’s chief executive, declined to comment on her firm’s relationship with the fund or to identify clients that it had advised to invest in it.
“We’re well aware of the situation with Amaranth and we are monitoring developments,” Ms. Pellish said.
Citing Amaranth’s woes, Stewart R. Massey, founding partner of Massey, Quick & Company, an investment advisory firm in Morristown, N.J., said, “I think it will cause investors to go back and take another hard look at the multistrategy funds they are invested in and do a deeper round of due diligence.” Mr. Massey said he did not have any exposure to Amaranth.
The problems at Aramanth will help fuel a debate over whether more oversight is needed over hedge funds, which have become increasingly powerful forces in the markets. There are nearly 9,000 hedge funds, managing more than $1.2 trillion in assets. In 1990, hedge funds managed just $38.9 billion, according to Hedge Fund Research.
Last week, in a speech in Hong Kong, the president of the Federal Reserve Bank of New York, Timothy F. Geithner, said greater attention needed to be paid to the margin requirements and risk controls in dealings with hedge funds.
The growth in hedge funds, Mr. Geithner noted, will eventually “force us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability.’’
In 2004, Amaranth protested a new rule proposed by the Securities and Exchange Commission that would have required certain hedge funds to register with federal regulators and undergo greater scrutiny.
“Contrary to media stereotypes of hedge fund managers, Amaranth does not ‘operate in the shadows’ outside of regulatory scrutiny,” its general counsel wrote. “We do not understand why the commission is proceeding so urgently with this rulemaking when the public policy problem to be addressed remains poorly defined and the proposed regulatory response is so burdensome.”
The rule, which was issued in late 2004, was struck down in June by the United States Court of Appeals for the District of Columbia. Last month, the S.E.C. declined to appeal the ruling.

Fortune’s Fools: Why the Rich Go Broke (NYTimes, 9/7/06)

September 17, 2006
Fortune’s Fools: Why the Rich Go Broke
By TIMOTHY L. O’BRIEN
GEORGE FOREMAN — bald, smiling and gigantic — is propped atop a stool in Gleason’s Gym, the venerable boxing haunt in Brooklyn, watching a videotape of his heavyweight championship bout in 1994 with Michael Moorer.

Mr. Foreman once devastated opponents with brutal, staccato punches short on artistry and long on force. He disposed of formidable pile drivers like Joe Frazier, traded blows with dangerous magicians like Muhammad Ali, and dropped the undefeated 26-year-old Mr. Moorer in the 10th round with a right to the jaw.

Mr. Foreman was 45 at the time of the Moorer fight, a roly-poly 250-pounder who had just reclaimed the heavyweight mantle that Mr. Ali had snatched from him 20 years earlier. By knocking out Mr. Moorer, Mr. Foreman became the oldest heavyweight champion in history and he hailed his victory at the time as one “for all my buddies in the nursing home and all the guys in the jail.”

As Mr. Foreman watches the tape of Mr. Moorer crumpling to the mat, part of a boxing retrospective that ESPN is shooting at Gleason’s, he beams. “Play that again,” he says to no one in particular, softly chuckling to himself. The knockout was the culmination of an unlikely return to the ring that Mr. Foreman staged in his later years, well after he had retired. He has often said that he ended his retirement to prove that nobody is too old for a comeback.

But Mr. Foreman confides in an interview that something else actually drove him back into boxing in the late 1980’s, and it had nothing to do with proving the meaninglessness of an AARP card. Having blown about $5 million, made mostly, he says, during his salad days as a young champion, he desperately needed the money he could earn by fighting again. A former street thug from Houston, accustomed to dispassionately cutting down the most ferocious of men, Mr. Foreman was on the verge of bankruptcy in the 1980’s — and it terrified him.

“It was frightening, the most horrible thing that can happen to a man, as far as I am concerned,” he says. “Scary. Frightening. Nervous. I had a family, people to take care of — my wife, my children, my mother. I haven’t gotten over that yet.”

Pondering his glimpse into the abyss a moment longer, Mr. Foreman’s eyes tighten: “It was that scary because you hear about people being homeless and I was only fractions, fractions from being homeless.”

UNLIKE many others with lush bankrolls who somehow manage to lose it all, Big George rebounded handsomely from his flirtation with bankruptcy. He earned multimillion-dollar purses boxing in the 1990’s and made tens of millions more by reinventing himself as a gentle entrepreneur, astutely peddling the best-selling hamburger grills that bear his name.

Even so, the trajectory of Mr. Foreman’s finances once had him headed into a gilded pantheon of big buckaroos who have squandered often-unimaginable sums of money, come perilously close to personal bankruptcy or completely lost their shirts. The ranks of well-heeled debtors include Thomas Jefferson, Buffalo Bill Cody, Mark Twain, Ulysses S. Grant, Debbie Reynolds, Michael Jackson, Dorothy Hamill, Robert Maxwell, Mike Tyson, Jack Abramoff and a long and pitiful cast of lottery winners.

Each of these grandees had distinct encounters with errant money management. Some of them were undone by rampant spending, others by injudicious deal-making, still others by various shades of greed, fraud or spectacularly poor investments. All of which gives rise to the same old set of questions: Why can’t those who are already wealthy restrain themselves from spending more than they have? Why do rich people, those who would seem to have all the financial padding one needs, wind up deeply in debt? Even worse, why do some of them end up broke?

Mr. Foreman, street-smart and now mindful of his wallet, has his own perceptive answers to those questions. For the man who came back from the brink, it’s all a matter of discipline and proper boundaries.

“A lot of people just don’t grow up,” he says. “I mean, 65-year-old men. They just don’t grow up. They don’t understand that money does not grow on a tree and that you’ve got to respect every dollar. Like Rip Van Winkle — the guy who slept — they party, party, party, then they wake up. ‘Oh my God!’ And they do something desperate trying to recapture what they had. And it doesn’t work like that. You must stay awake.”

David W. Latko, a money manager and radio host who recently published “Everybody Wants Your Money” (HarperCollins), a personal finance primer, reduces the mechanics of squandered wealth to handy categories. He says there are five basic ways people become rich: they inherit, marry, steal, win or earn their fortunes. Only those who earn fortunes, says Mr. Latko, tend to preserve their wealth. Inhabitants of the other four categories are more prone to be wastrels.

“The first thing you’ve got to look at, always, is where is the money coming from,” he says. “People who’ve made money themselves protect it. People who’ve inherited it spend it.”

Profiles of wealthy debtors may not be quite as tidy as Mr. Latko’s list suggests; self-made gazillionaires can wind up insolvent, too, particularly if they earn their money in celebrity circuses like Hollywood. But by and large, Mr. Latko’s list rings true and reinforces one of Mr. Foreman’s points: America’s rich, it would seem, sometimes do believe that money grows on trees.

In some of the darker scenes in Frank Capra’s 1946 cinematic parable about family, community and money, “It’s a Wonderful Life,” Uncle Billy, a kindly, pastoral fogy whose bank office is routinely visited by crows and squirrels, misplaces a hefty deposit that threatens to upend the Bailey family’s little savings-and-loan. Billy’s nephew, George Bailey, played by that symbol of middle-American rectitude, James Stewart, warns his uncle of the consequences of a bank collapse that also promises to force the Bailey family into debt.

“Where’s that money?” George screams at his uncle, growing more frantic by the second. “Do you realize what this means? It means bankruptcy and scandal and prison!” Later rescued from suicide and shame by a bumbling angel and generous townsfolk who kick in hatfuls of cash around the Bailey family’s Christmas tree, George gets smooches from his lovely wife and a new lease on life.

In our more modern financial era, fueled by credit card debt, home equity loans and myriad other forms of handy spending money, George Bailey’s predicament strikes us as, perhaps, quaint. When people like the former baseball commissioner Bowie Kuhn — who earned a handsome salary overseeing the national pastime before his law firm collapsed in bankruptcy in 1990 — decamp to manses in Florida to take advantage of state laws that prevent creditors attaching expensive homes, George Bailey’s fear of ostracism rings old-fashioned.

Over the last three decades, personal bankruptcy rates in America have soared. But in a nod to the notion that going belly-up still carries a whiff of disrepute, Congress tightened bankruptcy laws last year to circumvent what Senator Orrin G. Hatch, Republican of Utah, decried as “a way to avoid personal responsibility.”

It may be, however, that for most people, a bankruptcy filing simply marks an inability to stay afloat — not an attempt to dodge creditors — because most of those who lose their shirts typically are not rich.

According to a study by the St. Louis Federal Reserve last fall, most bankruptcy filers are blue-collar, lower-middle-class high school graduates who are already overloaded with debt when they get sideswiped by unforeseen miseries like a job loss or overwhelming medical expenses. Rarely do the rich have to ponder the consequences of layoffs or insurmountable hospital bills, yet the social ledger is chock-full of examples of landed gentry who still dissipate their wealth and run the risk of ignominy.

Buffalo Bill hauled in the equivalent of about $30 million in today’s dollars overseeing his Wild West show at Chicago’s Columbian Exposition in 1893, according to Erik Larson’s book “The Devil in the White City.” A financial panic in 1907 ruined him and his show; when he died in 1917 there wasn’t enough money in his till to pay for his burial.

Mark Twain, who had a lifelong penchant for dodgy investments and gimmicky inventions, lost about $4 million in today’s dollars betting on a newfangled but unwanted typesetting machine in the 1890’s. He subsequently had to take to the lecture circuit to stave off bankruptcy.

Michael Jackson, who began churning out Top 10 songs and albums as the lead singer of the Jackson 5 before reaching puberty, found it necessary to pledge a stake in his lucrative songbook of Beatles hits to secure a $270 million bank loan to forestall a slide into bankruptcy.

Mike Tyson, like Mr. Jackson a gifted man-child, is entangled in his own financial woes despite once having the marquee power to draw $30 million purses for a single fight. When Mr. Tyson filed for bankruptcy in 2004, he listed debts of $27 million, including about $13 million in unpaid federal taxes and about $174,000 for a diamond-studded gold chain. He had maintained a monthly budget of about $400,000 before the filing.

Buffalo Bill, Michael Jackson, Mike Tyson, Wayne Newton, Burt Reynolds, Elton John and other public examples of spending run amok were, or are, all entertainers, and entertainers offer ready fodder for tsk-tsking — largely because gossip columns make it easy for the rest of us homely paupers to take quiet satisfaction in their plight. Entertainers, for the most part, are also peculiarly vulnerable when it comes to personal finance.

“You have people who are struggling for a long time and then overnight, boom, they hit it,” says Shelley Finkel, Mike Tyson’s manager. “If they don’t have someone watching out for them, and some emotional stability, it will be very hard for them to be grounded financially.”

MR. FINKEL, a genial, elfin 62-year-old New Yorker who began his own career promoting a A-list rock stars like Jimi Hendrix, said he had always advised musicians and athletes to protect their wealth by socking away a chunk of their earnings into annuities or pensions. Few of them have heeded that advice, he said, including Mr. Tyson, who Mr. Finkel believes earned and lost more than $400 million in his boxing career.

“It’s very hard to tell them ‘Don’t!’ because they love the instant gratification,” Mr. Finkel says. “I think the human in general is vulnerable and whatever their weakness is it’s going to get exploited, particularly around money.”

Mr. Foreman, unlike most entertainers and athletes, had homegrown financial antennae, and his budgetary acumen surfaced at a relatively early age. He slugged his way into prominence by winning a gold medal at the 1968 Olympics, and a year later, when he was 20, he turned pro. Schooled, he said, in the perils of errant spending by the financial predicament of the boxing legend Joe Louis, he decided to form the George Foreman Development Corporation in 1971.

“I had so much time alone,” he recalls. “Not many people thought I would be champ of the world. Didn’t have any friends at all. And what I would do is walk to the bookstore, and I’d buy books. And they were books on taxes, accrual taxes, estimated taxes, and you better make a corporation.”

Mr. Foreman says his homework persuaded him to put about 25 percent of what he earned at every bout into a pension and profit-sharing plan controlled by his corporation. “I had all this time dreaming of this, so that when money came upon me I was already prepared,” he says.

Despite how closely Mr. Foreman tended his nest egg, most of his assets remained exposed. He describes the way he invested his unencumbered cash, about $5 million, as a series of blunders: “Oil wells, gas wells, banks, flop, flop, flop.”

Entertainers aren’t the only rich people with holes in their pockets. Business people, seemingly prepared to have a better handle on their balance sheets than celebrities, have wound up as big debtors as well. William Randolph Hearst, of the publishing empire, the San Simeon estate and a 280-foot yacht, stood at the edge of insolvency in the late 30’s. John Z. DeLorean, Motor City dream weaver and inventor of a streamlined sports car that bore his name, filed for bankruptcy in 1999 after financial and legal problems.

Questioned in 1991 about the reasons rich people hit the skids, the multibillionaire investor Warren E. Buffett told an audience at Notre Dame that debt and alcohol were ever-present culprits in financial demise. “I’ve seen more people fail because of liquor and leverage — leverage being borrowed money,” he said, according to a transcript of his comments. “You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.

“I’ve never borrowed a significant amount of money in my life. Never,” he added. “Never will. I’ve got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X.”

Yet even the most well-to-do sometimes still rely on debt. Over the years, Lawrence J. Ellison, founder and chief executive of Oracle, has preferred to hold onto, rather than sell, his shares in the database provider, giving him a stake currently valued about $17.6 billion.

Oracle shares represent almost the entirety of Mr. Ellison’s fortune, and to finance one of the country’s splashiest spending sprees (454-foot megayacht, mansions, expensive hobbies and more) he has occasionally taken on sizable bank loans rather than sell his shares — all on the presumption that the value of his shares will remain lofty enough to allow him to pay back the loans.

A RAFT of e-mail messages and financial documents introduced in a lawsuit that disgruntled shareholders filed against Mr. Ellison and other Oracle executives in 2001, give witness to some of Mr. Ellison’s budgeting practices. (The suit was settled last November and the judge in the matter subsequently unsealed financial documents submitted as exhibits in the case). The documents, first reported by The San Francisco Chronicle earlier this year, also show how far Philip E. Simon, an adviser who described himself as Mr. Ellison’s “financial servant,” went in trying to persuade his boss to pay off about $1.2 billion in loans. (Neither Mr. Ellison nor Mr. Simon responded to interview requests for this article).

Mr. Ellison’s ledger around the end of 2000 included annual “lifestyle” spending of about $20 million, the purchase of a Japanese villa for $25 million, a proposed underwater archeology project earmarked for $12 million and his new yacht, budgeted at $194 million (news reports later said that the yacht’s final cost approached $300 million).

“I know you view me as a pessimist,” Mr. Simon wrote Mr. Ellison in an e-mail message in 2002, several months after banks began sounding alarms about Mr. Ellison’s debt. “Maybe you’re right, though I would disagree. Nonetheless, I think it’s imperative that we start to budget and plan. New purchases should be kept to a minimum. We need to establish and execute on a diversification plan to eliminate (yes, eliminate) all debt and build up a significant, conservatively structured, liquid investment portfolio.

“I know you don’t like to discuss this,” Mr. Simon added. “I know this e-mail may/will depress you. View this as a call to arms.”

Mr. Ellison paid down a portion of his debt by 2002, according to court filings, and his Oracle holdings are vast enough that it was unlikely that his financial well-being was ever in peril. But for lesser financial potentates, the psychological twists behind overspending and bad investing can be more debilitating.

“The rich are different from you and me: they are more egotistical,” says Theodore R. Aronson, managing principal of Aronson Johnson Ortiz, an investment firm in Philadelphia. “Psychologically, I think the rich, because of their egos, think they know everything. Well, they don’t, and many of them repeatedly make horrible investments — because they can.”

Financial success can breed its own peculiar set of vulnerabilities. “People who are very successful develop elevated sensibilities about their skills, and when things turn on them they won’t admit they’re wrong because their self-confidence has held them up so long,” says Arnold S. Wood, chief executive of Martingale Asset Management in Boston. “In the face of evidence, even subjective evidence, that suggests that something bad is about to happen to someone, a funny thing happens: They reject the evidence.

“These kinds of people just continue spending because they think the money will keep coming in because they’re so successful,” adds Mr. Wood, who says he is fascinated by the possible neurological and social underpinnings of financial delusion and decision-making. He believes that gender plays a strong role in financial ruin because, he says, women tend to be more risk averse than men when it comes to money. Some interesting research backs this up.

Brad M. Barber and Terrance Odean, two business professors at the University of California, Berkeley, noted in an analysis in 2001 of stock trading, “Boys Will Be Boys,” that psychological studies demonstrated that men tended to be more overconfident than women. Financial data supported the same point. “Models of investor overconfidence predict that men will trade more and perform worse than women,” the professors’ study concluded.

Dig a little deeper into this psychological terrain, and, alas, the financial deck may be stacked beginning in childhood, regardless of sex. Kathleen Gurney, a “financial psychologist” who advises wealthy people trapped in monetary crises, said that the social milieu in which people grew up, the early messages they received about money and their individual emotional makeup all conspired to define how well they handled money as an adult.

America’s consumer landscape, which prizes spending and encourages people to define themselves by what they own, only makes the financial balancing act trickier for adults, especially if they have fat wallets.

“Someone who goes broke, or someone who goes into debt, is really somebody who isn’t comfortable having their money,” Ms. Gurney says. “Yes, it appears as a lack of discipline. But the lack of discipline comes from an emotional place that causes them to be undisciplined. It’s not about the money. It’s about our emotional relationship to money.

“The people who are out there just running through money have failed because they haven’t come to terms with who they are and what they want the money to do for them,” she adds. “I see a lot of baby boomers beginning to panic because they haven’t figured this out.”

Mr. Foreman, who stared down financial collapse as an adult despite a troubled, impoverished childhood, said he knew real wealth when he saw it. “If you’re confident, you’re wealthy,” he says. “I’ve seen guys who work on a ship channel and they get to a certain point and they’re confident. You can look in their faces, they’re longshoremen, and they have this confidence about them.”

He says he can spot a longshoreman who has enough equity in his home and enough money in the bank to feel secure, and that some people, no matter how much money they have, never get there. “I’ve seen a lot of guys with millions and they don’t have any confidence,” he says. “So they’re not wealthy.”

IN the years after the Moorer fight, Mr. Foreman became much wealthier than he ever was during his boxing career. In 1999, he sold his name and his image to the manufacturer of George Foreman’s Lean Mean Fat-Reducing Grilling Machine for $137.5 million in cash and stock. He is now a proven pitchman on home shopping channels and the lecture circuit. He owns a fleet of cars, a watch collection, two homes and a ranch in Texas, and another home on the Caribbean island of St. Lucia — but he says he has no idea what his net worth is, and he says he does not want to know.

“When you start knowing, you’re scared,” he says. “I have lots of money, you know what I mean? But I haven’t found confidence like that longshoreman I told you about.” Nearly going bankrupt, he asserts, has permanently scarred him. “I will never feel secure again,” he says. “I’ve got to earn, earn, earn, earn.”

Respect every dollar, Mr. Foreman reiterated, respect every dollar.

“You can become complacent,” he says. “You can say, ‘I’m successful,’ which is the kiss of death. In America it’s hard to wake up hungry. It’s frightening. You can become complacent and wake up tomorrow totally homeless.”

Group Nears Record Deal for Chip Maker (NYTimes, 09/11/06)

September 11, 2006
Group Nears Record Deal for Chip Maker
By ANDREW ROSS SORKIN and JOHN MARKOFF
A consortium of investment firms was near a deal late last night to acquire Freescale Semiconductor, a former unit of Motorola, for more than $16 billion, according to people briefed on the negotiations. The deal, if completed, would be the largest leveraged buyout ever in the technology sector, surpassing the $11.3 billion sale of SunGard Data Systems last year.
The talks illustrate the increased appetite of private equity firms for the technology industry, a sector shunned for years by financiers because it was considered too volatile. But as technology companies have matured and private equity firms have begun to look for companies that are not simply stable, but also growing, more and more deals are taking place.
The heart of Freescale’s business is in making specialized, or “embedded,” chips that provide intelligence for things as varied as automotive engines and cellphones.
The consortium of investors in talks to acquire Freescale include Texas Pacific Group, Blackstone Group and Permira, these people said. It is possible that the Carlyle Group and Bain Capital could also join the group.
People involved in the discussions cautioned that the talks could still collapse or that an interloper could emerge with a higher bid. Indeed, yesterday afternoon, Kohlberg Kravis Roberts & Company and Silver Lake Partners submitted an 11th hour offer for Freescale, but it appears that the bid may have been too low and too late, these people said. Of course, it is possible that the group could return with a higher offer. Exact details of the bids could not be learned.
A spokeswoman for Freescale did not return a call seeking comment. Spokesmen for the consortium either declined to comment or could not be reached.
The semiconductor industry appears to be in a deal frenzy.
Last month, Philips Electronics agreed to sell 80 percent of its semiconductor division to a group of private equity firms ­ Kohlberg Kravis Roberts & Company, Silver Lake Partners and AlpInvest Partners ­ for 3.4 billion euros ($4.4 billion).
Furthermore, Advanced Micro Devices agreed to buy ATI Technologies for $5.4 billion in cash and stock earlier this summer.
Joe Osha, an analyst at Merrill Lynch wrote in a note to investors last month saying semiconductor companies were ripe for more deals. “We think that managers in the semiconductor industry need to start thinking more seriously about capital structure or risk some unwanted but long overdue attention from activist investors and buyout firms.”
Freescale, which was spun out of Motorola in 2004, is now the worlds’ 10th largest chip maker with some $5.8 billion in revenues last year. The company plays a major role in electronic markets including the automotive and communications industries. Customers include Motorola and their extensive line of cellphones, Sony Electronics, Whirlpool appliances, Cisco routers, and car companies such as Mercedes, BMW, Ford, Hyundai and General Motors.
The chips used in these companies’ products are similar to the microprocessors that control desktop and portable personal computers. However, the software that controls the chips is stored in special memory chips referred to as flash memory.
Freescale’s chief executive is Michel Mayer, who is a 19-year veteran of I.B.M.’s semiconductor business.
On Friday, Freescale’s shares closed at $30.75, up 43 cents. The company has a market value of $12.47 billion.

Conservatives Help Wal-Mart, and Vice Versa (NYTimes, 9/8/06)

September 8, 2006
Conservatives Help Wal-Mart, and Vice Versa
By MICHAEL BARBARO and STEPHANIE STROM
As Wal-Mart Stores struggles to rebut criticism from unions and Democratic leaders, the company has discovered a reliable ally: prominent conservative research groups like the American Enterprise Institute, the Heritage Foundation and the Manhattan Institute.
Top policy analysts at these groups have written newspaper opinion pieces around the country supporting Wal-Mart, defended the company in interviews with reporters and testified on its behalf before government committees in Washington.
But the groups — and their employees — have consistently failed to disclose a tie to the giant discount retailer: financing from the Walton Family Foundation, which is run by the Wal-Mart founder Sam Walton’s three children, who have a controlling stake in the company.
The groups said the donations from the foundation have no influence over their research, which is deliberately kept separate from their fund-raising activities. What’s more, the pro-business philosophies of these groups often dovetail with the interests of Wal-Mart.
But the financing, which totaled more than $2.5 million over the last six years, according to data compiled by GuideStar, a research organization, raises questions about what the research groups should disclose to newspaper editors, reporters or government officials. The Walton Family Foundation must disclose its annual donations in forms filed with the Internal Revenue Service, but research groups are under no such obligation.
Companies and such groups have long courted one another — one seeking influence, the other donations — and liberal policy groups receive significant financing from unions and left-leaning organizations without disclosing their financing.
But the Walton donations could prove risky for Wal-Mart, given its escalating public relations campaign. The company’s quiet outreach to bloggers, beginning last year, touched off a debate about what online writers should disclose to readers, and its financing to policy groups could do the same.
Asked about the donations yesterday, Mona Williams, a spokeswoman for Wal-Mart, said, “The fact is that editorial pages and prominent columnists of all stripes write favorably about our company because they recognize the value we provide to working families, the job opportunities we create and the contributions we make to the community we serve.”
At least five research and advocacy groups that have received Walton Family Foundation donations are vocal advocates of the company.
The American Enterprise Institute for Public Policy Research, for example, has received more than $100,000 from the foundation in the last three years, a fraction of the more than $24 million it raised in 2004 alone.
Richard Vedder, a visiting scholar at the institute, wrote an opinion article for The Washington Times last month, extolling Wal-Mart’s benefits to the American economy. “There is enormous economic evidence that Wal-Mart has helped poor and middle-class consumers, in fact more than anyone else,” Mr. Vedder wrote in the article, which prominently identified his ties to institute.
But neither Mr. Vedder nor the newspaper mentioned American Enterprise Institute’s financial links to the Waltons. Mr. Vedder, a professor at Ohio University, said he might have disclosed the relationship had the American Enterprise Institute told him of it. “I always assumed that A.E.I. had no relationship or a modest, distant relationship with the company,” said Mr. Vedder, who has written a forthcoming book about the company. The book, he said in an interview yesterday, would eventually contain a disclosure about the Walton donations to the institute.
A spokesman for the Walton Family Foundation, Jay Allen, said there was no organized campaign to build support for Wal-Mart among research groups. All of the foundation’s giving, he said, is directed toward a handful of philanthropic issues, including school reform, the environment and the economy in Northwest Arkansas, where Wal-Mart is based. “That is the spirit and purpose of their giving,” Mr. Allen said.
Mr. Allen said the foundation, which had assets of $608.7 million in 2004, the last year for which data is available, has never asked the research groups to disclose the donations because “the family leaves it up to the individual organization to decide.”
Those groups, for the most part, say they have decided not to share the information with their analysts or the public.
For example, Sally C. Pipes, the president of the Pacific Research Institute, a free-market policy advocate, has written several opinion articles defending Wal-Mart in The Miami Herald and The San Francisco Examiner.
A month after a federal judge in California certified a sex discrimination lawsuit against the company as a class action in 2004, Ms. Pipes wrote an article in The Examiner criticizing the lawyers and the women behind the suit. “The case against Wal-Mart,” she wrote, “follows the standard feminist stereotype of women as victims, men as villains and large corporations as inherently evil.”
The article did not disclose that the Walton Family Foundation gave Pacific Research $175,000 from 1999 to 2004. Ms. Pipes was aware of the contributions, but said the money was earmarked for an education reform project and did not influence her thinking about the lawsuit. Asked why she typically did not disclose the donations to newspapers, she said: “It never occurs to me to put that out front unless I am asked. If newspapers ask, I am completely open about it.”
The lack of disclosure highlights the absence of a consistent policy at the nation’s newspapers about whether contributors must tell editors of potential conflicts of interest.
Juan M. Vasquez, the deputy editorial page editor of The Miami Herald, which ran an opinion article praising Wal-Mart by Ms. Pipes of Pacific Research, said his staff researches organizations that write opinion articles, including their financing. But that does not always require asking if the organization has received money from the subject of an article, he said.
The New York Times has a policy of asking outside contributors to disclose any potential conflicts of interest, including the financing for research groups.
Several of the research groups noted that their mission is to be an advocate for free market policies and less government intrusion in business. “Those aims are pro-business, so it’s not surprising that companies would be supporters of our work,” said Khristine Brookes, a spokeswoman for the Heritage Foundation.
Last year, for instance, The Baltimore Sun published an op-ed article by Tim Kane, a research fellow at Heritage, in which he criticized Maryland’s efforts to require Wal-Mart to spend more on health care. He objected to the move on the grounds that it was undue government interference in the free market, a traditional concern of Heritage.
“The existence of Wal-Mart dented the rise in overall inflation so much that Jerry Hausman, an economist from the Massachusetts Institute of Technology, is calling on the federal government to change the way it measures prices,” Mr. Kane wrote. “Translation: Wal-Mart is fighting poverty faster than government accountants can keep track.”
Ms. Brookes pointed out that the $20,000 Heritage has received from the Walton Family Foundation since 2000 amounts to less than 1 percent of its $40 million budget.
Ms. Brookes said it was unlikely that researchers and analysts at Heritage were even aware of the foundation’s contributions. “Nobody here would know that unless they walked upstairs and asked someone in development,” she said. “It’s just never discussed.”
She said Heritage did not accept money for specific research. “The money from the Walton Family Foundation has always been earmarked for our general operations,” she said. “They’ve never given us any funds saying do this paper or that paper.”
A spokeswoman for the American Enterprise Institute said the group did not comment on its donors. The group’s focus on Wal-Mart has been notable. In June, the editor in chief then of the group’s magazine, The American Enterprise, wrote a long essay defending Wal-Mart against critics. The editor, Karl Zinsmeister, now the chief domestic policy adviser at the White House, said the campaign against the company was “run by a clutch of political hacks.”
Conservative groups are not the only ones weighing in on the Wal-Mart debate. Ms. Williams of Wal-Mart noted labor unions have financed organizations that have been critical of Wal-Mart, like the Economic Policy Institute, which received $2.5 million from unions in 2005.
In response, Chris Kofinis, communications director for WakeUpWalmart.com, an arm of the United Food and Commercial Workers Union that gives money to liberal research groups, said: "While we openly support the mission of economic justice, Wal-Mart and the Waltons put on a smiley face, hide the truth, all while supporting right-wing causes who are paid to defend Wal-Mart’s exploitative practices.”
The lack of a clear quid pro quo between research groups and corporations like Wal-Mart makes the issue murky, said Diana Aviv, chief executive of the Independent Sector, a trade organization representing nonprofits and foundations. “I don’t know how one proves what’s the chicken and what’s the egg,” she said.
Last year, the National Committee for Responsive Philanthropy, a research and watchdog group, published a report, “The Waltons and Wal-Mart: Self-Interested Philanthropy,” that warned of the potential influence their vast wealth gives them.
But Rick Cohen, executive director of the group, said he was more concerned about the role the Walton foundation’s money might play in shaping public policy in areas like public education, where it has supported charter schools and voucher systems.
“These are certainly not organizations created and controlled by the corporation or the family and promoted as somehow authentic when they aren’t,” Mr. Cohen said. “More important, I think, is the disclosure of the funding in whatever’s written, a sort of disclaimer.”

Nasdaq Is Planning to Start an Options Exchange in 2007 (NYTimes, 9/7/06)

September 7, 2006
Nasdaq Is Planning to Start an Options Exchange in 2007
By JENNY ANDERSON
Nasdaq, the nation’s second-largest stock market, will start an options exchange next year in an effort to capitalize on a growing market whose competitors and structure are rapidly changing.
The decision comes about the same time that Nasdaq will have to decide whether to increase the 25 percent stake in the London Stock Exchange it acquired earlier this year or even to make a hostile bid for it.
Nasdaq like every other exchange around the world, is facing a new set of challenges and opportunities. Stock markets from Tokyo to Chicago have shifted from being member-owned, floor-based operations to being for-profit, publicly traded, electronic enterprises, focused on building the volume necessary to make the business profitable.
Yet trading stocks is not the most profitable business for exchanges: trading options and other derivatives, clearing stock and derivative trades and listing companies are the areas where exchanges make the most money.
Nasdaq was motivated to start an options exchange predominantly because the Securities and Exchange Commission will begin a pilot program for trading options priced in pennies instead of nickels. Such a radical change in the marketplace could disrupt competition, creating opportunities for a new entrant, said Chris Concannon, executive vice president of the Nasdaq Stock Market.
“We see this as a watershed event in the options market,” he said.
Other reasons contributing to the decision include growth in the options market and the fact that Nasdaq acquired the technology it needed to build an options exchange when it bought Instinet, Mr. Concannon said. The exchange will open in the third quarter of 2007.
Nasdaq will be entering a crowded market, dominated by the Chicago Board Options Exchange and the International Securities Exchange. The two collectively control about 60 percent of the market.
Nasdaq is far from the first exchange to diversify its product offerings. Its archrival, the New York Stock Exchange, bought Archipelago in 2003, an all-electronic exchange, which also gave the Big Board the ability to offer options trading. In August, NYSE/Arca controlled 9.6 percent of all options products, according to the Options Clearing Corporation, a data provider. The NYSE Group has also made a bid for Euronext, a pan-European exchange. Deutsche Bourse has also made a bid for Euronext.
At the same time that stock markets are leaping into the options game, options markets are getting into the stock game. This year, the International Securities Exchange announced that it was starting a stock market; more recently, the Chicago Board Options Exchange followed suit.
“This is a crowded field,” said Meyer S. Frucher, chairman of the Philadelphia Stock Exchange, which operates both stock and options markets. “How one breaks out is hard to see, although the one advantage Nasdaq might have is its desktop real estate with the INET terminal,” he said, referring to the fact that many traders already have the technology that will be used to trade options.
The move reflects a new direction for Robert Griefeld, the chief executive at Nasdaq, who has told analysts and investors he has a “maniacal” focus on stealing market share from the New York Stock Exchange. That is a contrast to John A. Thain, chief executive of the NYSE Group, who has repeatedly emphasized his desire to build or acquire products in new regions around the world.
Mr. Concannon said Nasdaq had not shifted its focus away from New York. “This is us having resources that we can leverage to step into what is a complementary product to our underlying asset class — equity,” he said. “This is not losing any focus on the NYSE story.”
In March, Nasdaq made an unsolicited bid for the London Stock Exchange, which would not diversify Nasdaq’s products, but would diversify its geographical reach. When the offer was rebuffed, Nasdaq went on to amass a 25 percent stake in the exchange.
As a result of that position, Nasdaq will have to wait until early October before acting again.