Euro-area confidence in the economic outlook improved less than forecast in January as the region
In Silicon Valley’s white-hot competition for tech talent, programmers can face a daily barrage of calls from recruiters seeking to woo them to rival companies with offers of better pay and perks.
But workers for some of the biggest names in the business claim their phones fell silent because of a conspiracy among their employers. And they claim the world’s biggest tech icon was at the center.
A lawsuit filed in federal court in San Jose claims senior executives at Google Inc., Intel Corp., Adobe Systems Inc., Intuit Inc., Lucasfilm Ltd., Pixar and Apple Inc. violated antitrust laws by entering into secret anti-poaching agreements not to hire each other’s best workers. In doing so, the suit contends the companies were able to keep wages artificially low by preventing bidding wars for the best employees.
The plaintiffs also claim that company e-mails show Steve Jobs himself sought and orchestrated at least some of the so-called “gentlemen’s agreements” while Apple’s CEO.
“I believe we have a policy of no recruiting from Apple,” then-Google chief executive Eric Schmidt wrote in a 2007 email cited by the plaintiffs. The email was originally furnished to the U.S. Justice Department, which investigated similar allegations in 2010. The same email included a forwarded message from Jobs complaining that Google’s recruiting department was trying to lure away an Apple engineer.
“Can you get this stopped and let me know why this is happening?” Schmidt wrote. Google’s director of staffing replied that the recruiter “will be terminated within the hour.”
The companies’ attorneys said the facts even as presented by the plaintiffs show no evidence of a conspiracy.
Rather, they said in court filings that some companies had separate one-to-one pacts among themselves as they worked together on various business ventures.
“The obvious explanation for the existence of these agreements were the collaborations,” said Apple defense attorney George Riley, as the two sides squared off Thursday in U.S. District Court in San Jose. Riley told Judge Lucy Koh that such arrangements were common.
The case hinges on a practice described in court documents as “cold-calling.” Under the practice, recruiters from one company will call an employee at another company who has the skills the company needs. The practice can lead to bidding wars as workers play the companies off one another to get the highest pay.
Cold-calling, the suit contends, helps workers get a sense of what they’re worth in a free market for employment in which all the companies are competing against one another for top employees. When the cold-calling stops, workers lose the knowledge and the leverage they could otherwise use to demand higher pay.
The Justice Department’s 2010 investigation included all the same companies except Lucasfilm, and the plaintiffs in some ways mimic the language from the department’s original case. The companies settled without admitting any wrongdoing but agreed not to enter into future agreements preventing them from cold-calling each other’s employees to recruit them.
Because the Justice Department’s case was settled quietly without any public dispute, court records contain little detail about any specific alleged agreements among companies.
Some of those details did come to light, however, in a recent filing by the plaintiffs, which quotes emails they obtained from the companies that had previously been given to the Justice Department business cards.
In a 2005 email describing a purported agreement between former Adobe CEO Bruce Chizen and his then-counterpart at Apple, an Adobe human resources executive wrote: “Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa,” according to court documents.
Ex-Palm Inc. CEO Ed Colligan wrote to Jobs in 2007: “Your proposal that we agree that neither company will hire the other’s employees, regardless of the individual’s desires, is not only wrong, it is likely illegal,” the plaintiffs’ filing said.
In internal company communications, Intel CEO and Google board member Paul Otellini described a gentleman’s agreement between the two companies: “Let me clarify. We have nothing signed. We have a handshake `no recruit’” between himself and then-Google CEO Schmidt. “I would not like this broadly known.”
Defense attorneys contend the emails are being distorted by the plaintiffs and show nothing beyond legitimate one-to-one agreements. Apple declined to comment.
“Intel disagrees with the allegations contained in the private litigation related to recruiting practices and plans to conduct a vigorous defense,” said Sumner Lemon, an Intel spokesman.
Adobe said the company does not comment on pending litigation.
The other companies named in the suit did not immediately respond to requests seeking comment.
Whichever side prevails, the case underscores the high wages talented tech workers can command in Silicon Valley, where the tech industry added thousands of jobs last year. According to federal labor statistics, mid-level tech workers in the region such as computer security specialists, web developers and network architects earn more money than anywhere else in the country, with average annual salaries topping $110,000.
Many of those workers could get thousands more if the case goes their way, lead plaintiff’s attorney Joseph Saveri said. Given the potentially tens of thousands of workers affected if the plaintiffs succeed in turning the suit into a class-action case, Saveri said the combined damages for the companies could reach into the hundreds of millions of dollars if decided at trial.
Such penalties would sink many companies. But Apple recently reported cash reserves of more than $97 billion. Google also has billions in cash on hand.
One anti-trust attorney not involved in the case doubts the companies have much to worry about anyway.
Antitrust cases that revolve around hiring practices are difficult to win, said David Balto, a Washington, D.C.-based antitrust lawyer who investigated Microsoft as a staff attorney for the Federal Trade Commission in the 1990s. Among the legal challenges they face is defining who exactly makes up the class of workers harmed by the alleged violations, since people with different jobs have different employment options, he said.
“I don’t think anybody at these companies is losing a nanosecond of sleep because of this lawsuit,” Balto said.
Portugal has come under heavy pressure in the bond market this week as investors fear the nation could be the next domino to fall in the eurozone debt crisis.
On Thursday, the yield on 10-year government bonds spiked above 15%, the highest level since the euro currency was launched in 1999, while yields on 3-year notes surged to nearly 21%.
Investors have been rattled by the increasingly coercive debt negotiations in Greece, where private sector bondholders are facing losses of up to 70% of their Greek debt holdings. The fear is that Portugal may eventually seek a similar deal to write down some of its €162 billion debt load.
Portugal’s borrowing costs shot up after Standard & Poor’s downgraded the government’s credit rating to speculative grade, or junk, on Jan 13. The ratings agency said investors could lose up to 50% of their holdings if Portugal were to default on its debts.
But investors are also worried about Portugal’s bleak economic prospects and the uncertain outlook for the eurozone in general. The Portuguese economy is expected to shrink 3% this year as austerity measures take their toll and the broader eurozone economy contracts.
"Obviously it is not just the downgrade but the starting debt position, the economic outlook and the possibility that Greece is setting a template for the future that is concerning investors," said Gary Jenkins, a fixed-income analyst at Swordfish Research.
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While the bond market has turned against Portugal, investors have been primarily worried about larger eurozone economies such as Italy and Spain, which are seen as vulnerable to a full-blown debt contagion.
Borrowing costs for Italy and Spain have backed off recent highs amid a flood of liquidity from the European Central Bank, which pumped nearly €500 billion of long-term loans into the banking system and relaxed its collateral requirements.
Meanwhile, Portugal succumbed to the debt crisis long ago. The nation first tapped a €78 billion bailout from the European Union and International Monetary Fund in Apirl 2011.
In December, the IMF released €2.3 billion from Portugal’s bailout and praised the government for the progress it has made on fiscal reforms, saying the program was "broadly on track."
The IMF expects Portugal to return to the public markets in 2013. But fund officials cautioned that the government needs to do a better job at controlling public spending, especially at the local level and in state-owned enterprises.
IMF cuts growth forecast for all but U.S.
Despite the market pressure and economic challenges, analysts say Portugal is not in immediate danger of default.
"Regardless of the future complications, it is unlikely that the government will opt to default in the next few months," said Antonio Barroso, an analyst at Eurasia Group, a political risk research firm.
However, the government may need to seek additional bailout money in the second half of the year, depending on its progress on fiscal reforms and the outcome of the eurozone crisis, Barroso wrote in a note to clients.
Greece, by contrast, has struggled to implement budget cuts and structural reforms that are a condition of its bailout loans.
The nation has yet to seal a deal with private investors over a proposed 50% reduction in the value of Greek government bonds. The agreement is a key condition of a second €130 billion bailout, the terms of which are now being negotiated.
Athens is facing a €14.5 bond redemption in March that it may not be able to pay without additional bailout funds.
Ireland, which passed its latest bailout review with flying colors last week, has been the most successful bailout recipient. The nation’s borrowing costs have eased this year and Dublin announced a debt swap with private investors on Wednesday.
Freddie Mac is in the spotlight of the Republican presidential contest, as Mitt Romney attacks Newt Gingrich for his 2006 work for the mortgage finance firm.
But what the firm did, and the role it and larger rival Fannie Mae played in the housing crisis of the last decade, remain a source of confusion for many Americans.
What do Freddie Mac and Fannie Mae do? The two of them support the housing industry by providing billions in financing to the mortgage market.
They buy mortgage loans from lenders that conformed to their guidelines, typically safer loans with a large down payment, good credit scores for the borrowers and verification of their income.
Because there is an implicit guarantee that the federal government stands behind both firms, which were set up by Congress, they borrow money at the lowest possible rates and get a good return on their investment.
Did the two firms create the housing bubble that caused the financial meltdown? Not really.
The two firms were major players in the mortgage market, and so the rising home values were at least partly funded by their flow of money.
But the bubble really inflated when Wall Street started buying riskier loans made to borrowers who didn’t qualify for a Fannie or Freddie conforming loan. Those loans carried higher interest rates, with relatively little risk for investors while home prices were going up.
Experts say it was the growth of those riskier loans that caused home prices to rise and the bubble to inflate.
"When you bring in 5 million marginal buyers who under normal circumstances would not qualify for a mortgage, that’s what ends up driving home prices," said Barry Ritholtz, CEO of Fusion IQ.
He said the big Wall Street firms that became major players in the mortgage market, such as Citibank (, Fortune 500), Bank of America (, Fortune 500), Goldman Sachs (, Fortune 500), Morgan Stanley (, Fortune 500) and AIG (, Fortune 500), are as or more guilty than Freddie and Fannie.
"If Freddie and Fannie never existed, we would have had the same problem," he said.
What caused problems for Fannie and Freddie? By the middle of the last decade, Freddie and Fannie had lost their dominant position in the home loan market, as the riskier loans became a larger share of the mortgage market.
So they adjusted their underwriting standards in order to participate in the riskier lending as well.
Obama’s housing track record
Even though the riskier loans were a minority of the loans each purchased, because each was so huge, they ended up with a large volume of those loans.
They also were relatively late to the game. That meant they got into riskier loans right before the decline in home prices — which began in 2006 — led to a spike in foreclosures. After that, home buyers started to default on loans that were safer, adding to Freddie and Fannie’s losses.
"What killed Fannie and Freddie is the housing market went to hell and they were 100% exposed to housing," said Jaret Seiberg, analyst with Guggenheim Washington Research Group.
How much money did the collapse cost taxpayers? So far Freddie has received $72.2 billion from Treasury, while Fannie, which is larger, received $111.6 billion. The combined $183.8 billion makes it the most expensive bailout by taxpayers of the financial crisis. But part of that bailout has been repaid to taxpayers in the form of dividends. Freddie has repaid $14.9 billion, while Fannie paid $17.2 billion.
Seiberg said that the bailout might have been avoided, or been relatively minor, if Fannie and Freddie had stayed away from the riskier loans.
"Best-case scenario would have been they were knocked down, but not knocked out," he said.
Why did Freddie and Fannie hire Washington insiders such as Newt Gingrich?Gingrich’s contract with Freddie is short on specifics of the work he performed for $25,000 a month. But even if he did no lobbying, as he says, the contract came at a time when Freddie and Fannie were eager to buy as much Washington influence as possible.
For years, the two firms were among the most powerful companies in terms of Washington muscle, getting free reign from both Congress and their regulator, then known as the Office of Federal Housing Enterprise Oversight (OFHEO).
"Fannie and Freddie had Congress wrapped around their fingers," said Guy Cecala, CEO of Inside Mortgage Finance, which publishes trade publications following the mortgage market. "They were untouchable."
Because of the public-private nature of their charters, the firms wanted to make sure Congress and OFHEO allowed them to operate with few restrictions. But they also wanted to keep government’s implicit backing in place so they could borrow money cheaply.
"They were very aggressive lobbying Congress and OFHEO to stay out of their way," said Ritholtz.
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Canada is looking at alternatives for exporting its oil since U.S. President Barack Obama announced he was blocking a pipeline from Alberta to Texas.
A pipeline executive said Thursday that the company was weighing whether to build a segment of the line _ from Oklahoma to Texas _ that wouldn’t require U.S. State Department approval. And government officials said Canada would push harder for a pipeline to the Pacific Coast, where oil could be shipped to China.
At the same time, Canadian officials said, they are hopeful the 1,700-mile (2,740-kilometer) Keystone XL pipeline will be built.
Alberta Premier Alison Redford, the leader of the Canadian province that has the world’s third-largest reserves of oil, said that while Canada is disappointed at Obama’s decision, the government believes Obama has made it clear the U.S. would consider a new Keystone XL pipeline application with a new routing.
Obama called Prime Minister Stephen Harper to explain that the decision on Wednesday was not on the merits of the pipeline but rather on the “arbitrary nature” of a Feb. 21 deadline set by Republican legislators as part of a tax measure he signed, Harper’s office said.
“The fact that the president has said that the decision was not based on the merits we take as a signal that there is an opportunity to make a decision that is in the national interest that allows the project to go ahead,” Redford told The Associated Press in a telephone interview.
Calgary-based TransCanada Corp., which proposed the pipeline, said Thursday it was considering building the pipeline in segments, with the first connecting an existing pipeline in Oklahoma to refineries in Texas.
The Obama administration had suggested development of an Oklahoma-to-Texas line to alleviate an oil glut at a Cushing, Oklahoma, storage hub.
“If our shippers are interested in building that portion of the pipeline (first), we would look at that,” TransCanada President and CEO Russ Girling told The Associated Press in an interview.
Obama’s rejection of Keystone XL “clearly gives flexibility to do that,” Girling said. He emphasized that the company had made no decisions.
U.S. officials have said that building the pipeline in sections could speed up the process since the U.S. State Department would not be involved if the pipeline does not cross the U.S.-Canada border.
Girling’s remarks were in contrast to a statement TransCanada issued on Wednesday declaring it would reapply for a presidential permit to build the full pipeline. Girling said the company still expects to reapply, but “will take our time for how to refile it.”
He said a new route that avoids environmentally sensitive areas of Nebraska should be made public in a matter of weeks
In Washington, the proposed $7 billion pipeline has become a political hot potato.
Republicans _ who earlier put the president in the awkward position of having to make a decision on it before Feb. 21 _ now hope to force Obama to deal with it yet again before next November’s presidential election. He wants to put it off beyond that.
Republicans are looking to drive a wedge between Obama and two key Democratic constituencies. Some labor unions support the pipeline as a job creator, while environmentalists fear it could lead to an oil spill disaster.
The Alberta-to-Texas pipeline proposed by TransCanada would carry 800,000 barrels of oil a day from Alberta across six U.S. states to the Texas Gulf Coast, which has numerous refineries.
Natural Resource Minister Joe Oliver said it’s clear the process is not yet over and said Canada is hopeful the pipeline will be accepted on its merits.
Redford said Obama’s decision adds urgency to Enbridge’s proposed pipeline to the Pacific Coast of British Columbia that would allow Canadian oil to be shipped to Asia for the first time.
The project is undergoing a regulatory review in Canada.
“Asian markets are a very viable alternative. I say alternative, I probably shouldn’t. It’s not an either or situation. There’s an opportunity here for us to grow our markets in both directions and we’d like to be able to do that,” Redford said.
Canadian officials see the pipeline to the Pacific coast as critical as Canada seeks to diversify its energy customer base beyond the United States, which Canada relies on for 97 percent of its energy exports.
Alberta has more than 170 billion barrels of oil reserves. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million in 2025. Only Saudi Arabia and Venezuela have more reserves.
Sinopec, a Chinese state-controlled oil company, has a stake in Enbridge’s proposed $5.5 billion Northern Gateway Pipeline. Chinese state-owned companies also have invested more than $16 billion in the oil sands in the last two years.
Tens of billions more are expected to be invested in Canada’s oil sands if the Pacific pipeline is built.
There is fierce environmental and aboriginal opposition to the Pacific pipeline, but Harper’s government has called it a nation-building project that is crucial to the country’s goal of becoming an energy super power.
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French President Nicolas Sarkozy secured a small boost from Moody’s rating agency Monday following a bruising downgrade last week of the way the country had been handling its economy.
Moody’s said Monday it was maintaining France with a top AAA rating and stable outlook for its debt. Rival agency Standard & Poor’s, more downbeat about the prospects for France and Europe as a whole, stripped France of its long-cherished triple A rating last Friday.
In early trading, markets appeared to brush off S&P’s decision to cut the credit ratings of nine European countries, including France. Though the downgrades late Friday had been expected, they served as a reminder that the 17 countries that use the euro as their currency still have a long way to go to get a handle on the two-year debt crisis.
Europe’s economies will likely remain the focus of attention across markets all week as a number of bond auctions are due at the same time as Greece tries to clinch a debt-reduction deal with its private investors.
Sarkozy’s budget minister Valerie Pecresse said Monday she was optimistic that S&P’s knockdown would not lead to a rise in the country’s borrowing costs. A short-term French bond auction later on that day is seen as a test of the impact of the downgrade.
In its announcement, Moody’s cited the French economy’s overall strength but said bleak growth prospects in France and the region present “risks to the French government’s fiscal consolidation plans.”
Moody’s had said in October it was putting France on review, as Sarkozy and other European leaders struggled to find solutions to Europe’s protracted debt crisis.
Moody’s said Monday it “will update the market during the first quarter of 2012 as part of the initiative to revisit the overall architecture of our sovereign ratings in the EU.”
The rating agency detailed the strengths of the French economy, but noted that the country’s debt levels have deteriorated because of the “global economic and financial crisis” and were now among the weakest of all AAA countries.
“France, like other eurozone sovereigns, may face a number of challenges in the coming months. The need to provide additional support to other European sovereigns or to its own banking system cannot be excluded no teletrack payday loan. In that case this could give rise to significant new (contingent) liabilities for the government’s balance sheet,” Moody’s warned.
Moody’s notes the government has less room to maneuver than during the 2008 meltdown. “The domestic and external economic growth outlook presents significant risks to the French government’s fiscal consolidation plans.”
Sarkozy meets later Monday with Spain’s new Prime Minister, Mariano Rajoy, whose country was also downgraded Friday by S&P.
The S&P move was especially brutal for France, one of the world’s biggest economies and a financier of bailouts for smaller, poorer eurozone countries.
Sarkozy has yet to speak publicly about the downgrade, leaving his government ministers to try to calm the public.
Pecresse said on Europe-1 radio Monday that she doesn’t expect “mechanical consequences” of the downgrade because France has “credibility” and is a “sure value.”
She noted that the United States didn’t see its borrowing costs spike after last August’s decision by Standard & Poor’s to strip it of its AAA rating. Like France, the U.S. is rated AA+.
Pecresse and the prime minister promised to continue cost-cutting reforms, despite criticism from the left _ and S&P itself _ that austerity measures alone could crimp growth.
Sarkozy’s challengers for the presidency have seized on the downgrade as what they call evidence that his policies are wrong-headed and ineffective.
Sarkozy hasn’t announced his candidacy but is near certain to seek a second term in two-round elections in April and May. He trails Socialist Francois Hollande in polls and is facing increasing pressure from far-right candidate Marine Le Pen and a centrist, Francois Bayrou.
It will be a bruising battle for Sarkozy, a dynamic leader who has a strong international profile but is widely disliked at home. Leftists say he has coddled the rich, while many of those who supported him in his 2007 campaign say he hasn’t fulfilled his promises.
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