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(Fortune Small Business) — Few entrepreneurs plan to shoot their product down. For David Lashmore, it was a necessity. Lashmore’s company, Nanocomp Technologies, is the first in the world to make sheets of carbon nanotubes — microscopic tubes stronger than steel but lighter than plastic. The Pentagon has financed much of the Concord, N.H., firm’s work; stakes include the 500 million U.S. market for body and vehicle armor, which is currently dominated by DuPont’s Kevlar. In April, Lashmore had a mechanical multicaliber gun shoot bullets at different versions of his sheet, each less than a fifth of an inch thick, at a speed of 1,400 feet per second. Four sheets were breached, but three showed no damage. Lashmore and his 35 employees were ecstatic. “We didn’t expect it to work at all,” he admits. Carbon nanotubes are not new. The superstrong molecules have excited scientists since the early 1990s. In theory, they could be used to build superlight cars or aircraft. But it proved difficult to grow nanotubes longer than 20 microns (one-fifth the width of a human hair). You could get the stuff only as a powder that was used to make tennis rackets and bicycles. In 2003, Lashmore started experimenting with carbon nanotubes at a high-tech incubator. A year later he was making nanotubes 1,000 microns long. That got the attention of Peter Antoinette, the former CEO of a high-tech materials company, and the pair founded Nanocomp in 2004. They developed a patent-pending system, controlled by a computer, that could produce large quantities of one-millimeter nanotubes. This was long enough to start making yarn and sheets. More than 80% of Nanocomp’s revenue, at least 10 million this year, comes from the Pentagon. “We’re funding them more than we’ve ever funded any fiber project,” says engineer Philip Cunniff at the Army’s Research, Development and Engineering Center in Natick, Mass. Army tests show the material works as well as Kevlar. The military also hopes to replace copper wiring in planes and satellites with highly conductive nanotubes, saving millions of dollars in fuel costs. Within four years, Antoinette says, he will be producing the nanotube textile for upward of 10 per 35-gram sheet. The price of Kevlar varies wildly depending on the application, but Nanocomp will probably have to reduce costs to roughly 1 a sheet to be competitive. (DuPont makes 50,000 tons of Kevlar a year.) Still, experts are optimistic. “They’ve solved a lot of problems,” says Ray Baughman, director of the NanoTech Institute at the University of Texas at Dallas. “It’s a relatively near-term product.” DuPont may soon have trouble shooting it down.

Source:CNN

NEW YORK (Fortune) — This is the second installment in a series of health-care columns by Fortune’s Shawn Tully.Unlike the House bill that fills 1,100 pages, my proposed health-care plan can be expressed in four simple bullet points. The marketplace, with more than 100 million consumers writing their own checks, will take care of the rest.1. Eliminate the tax break for employer health plans.About two in three Americans get health coverage through their employer. On the surface, the system appears to work well: Most people like their plans. The deductibles and co-pays are usually low, and they don’t have to worry about shopping for insurance. But the employer plans also carry a heavy cost that’s hidden from the employee. Workers don’t realize it, but they’re sacrificing a big part of their pay because their company is providing coverage. The employer is often offering extremely rich, expensive plans.That sounds good, until you realize that you’re losing thousands of dollars in take-home pay, or tens of thousands, in exchange for coverage that you’d never buy if you had that money in your paycheck.The goal of a free-market plan is to channel the cash companies now spend to cover their employees back to the workers who really pay for it. That puts consumers in charge. Once in command, those consumers would typically receive bigger paychecks, and have plenty left over after buying perfectly serviceable insurance, chiefly for the unexpected illnesses that are extremely costly to treat. They would also pay for a lot more medical expenses out of their own pocket with the extra cash. That’s a good thing, since it would encourage Americans to shop for best prices and highest quality. In other words, they would behave like normal consumers, a practice the current system discourages, and the Obama plan would discourage even more.0:00
/4:18Obama’s health care road tripSo why do we have a system where employers, not employees, usually purchase health care? During World War II, strict wage controls prevented companies from attracting scarce workers by offering higher pay. So in 1943, Congress granted employers the right to offer tax-free health benefits in lieu of extra cash in their paychecks. Until then, Americans were buying policies with their own after-tax dollars. But the law transformed the system, and distorted the marketplace: Suddenly, companies could buy insurance for employees at a far lower cost than they could buy it for themselves, via a big tax subsidy. The goal now is to hand both the cash companies spend on health care, and the subsidy as well, back to consumers.Here’s how the current system works, and a blueprint for fixing it. If an employee earns 110,000 a year, and the employer pays 9,000 towards the employee’s 12,000 insurance plan, the worker only gets taxed on the 110,000 salary. The extra 9,000 is, in effect, tax-free income. Say the company dropped its plan and gave the employee 9,000 in extra pay. He or she would pocket just 6,000 after taxes. So companies can buy 50% more health care for employee than the employees could buy if they got the money directly. Of course, the government is making up the difference with a 3,000 subsidy. That money isn’t free either. The health-care exclusion is the biggest tax break in the U.S. budget, even bigger than mortgage interest. It lowers revenues, and hence raises taxes, by 300 billion a year.So here’s the best solution. Let’s repeal the employer exclusion. In our example, the employer would give its workers the money it now spends on health care in extra pay — in this case, the 9,000. Why? Because in a competitive labor market, companies need to provide the same total compensation or risk losing employees to rivals. That’s just basic economics, and it would still happen even with today’s high unemployment rate.Now, the employee has an extra 6,000 to pay for health care. That’s the first part of the solution. Part two is to restore the subsidy, but this time give it directly to consumers. The government would collect an extra 300 billion in taxes. It could grant 2,500 a year to individuals, and 5,000 to families from that pot without raising taxes or increasing the deficit. So a family would have an extra 11,000 to spend on health care.So which plans would families purchase?That’s impossible to predict with certainty. Many may choose expensive plans that cost as much as the ones their companies provide — in our example a 12,000 policy. But given the choice, millions more Americans could go for far less expensive, high-deductible policies that cover the big-ticket essentials such as a stroke or heart attack.That’s the way insurance is supposed to work — not as an open-ended benefit, but as protection against unforeseen, catastrophic events. If your house burns down, the insurance company pays. If you wash the windows or fix the screens, you pay. Let’s return to our example. A high-deductible family policy in Pennsylvania or Kentucky costs around 5,500. The employee would then have 5,500 left over to cover routine tests and physician visits. That would unleash the power of the American consumer in an epic way. Then, we’d see if the laws of supply and demand really work in health care.2. Deregulate the three big inflators of health-care costsThe Obama plan would take three regulations that vastly inflate costs on the state level, and enshrine them into federal law. It’s young Americans who suffer most today from these laws and would suffer more under Obamacare. As we’ll see, in many states they’re already forced to pay far more than their actual cost, a major reason so many of the healthy twenty- and thirtysomethings have dropped their insurance. Under Obamacare, they’d be forced under threat of heavy fines to pay what amounts to a big tax to pay for other people’s care, chiefly that of older Americans.The first of these regulations is the “standard benefits package.” Twenty states — including Maryland, Colorado, California, Florida, and New York — require that dozens of specific benefits be covered in any insurance plan. A typical list encompasses hearing aids, chiropractic services, obesity treatments, autism care, and drug-abuse therapy. The Obama plan, for example, would require coverage for dependents until the age of 26. Many of these benefits are in the state plans not because they’re essential to basic care, but because they’re promoted by powerful lobbying groups.Obama wants to mandate these plans for all Americans. He then plans to heavily subsidize them. These mandated, rich packages are a major cause of health-care inflation in many states. Eliminating them would allow consumers to pick among a vast variety of plans.The second cost-raising regulation is “community rating.” Under strict community rating, providers are forced to charge the same premiums for all patients, no matter what their actual costs. The restrictions are extremely strong in nine states, including New York, New Jersey, Massachusetts, Vermont, Colorado, and Oregon.But young people cost far less to insure than older Americans for a simple reason: They require far less care. Yet in community-rating states, workers in their 20s are forced to pay close to, if not the same, premiums as people in their 50s and 60s whose medical expenses are three to four times larger. For the young, the problem is magnified by standard benefits packages, since they drive up the average cost of all policies in the state. And if any group wants basic policies (rather than extremely comprehensive, rich ones), it’s young Americans. As a result, community rating has pushed millions of young people out of the insurance market.The third damaging regulation is called “guaranteed issue.” It requires that insurers accept anyone who applies, including patients with pre-existing conditions such as diabetes and cancer. Once again, the laws undermine the whole concept of insurance. “The carriers want to insure you for insurable events — stroke, heart attack, or an unexpected illness,” John Sheils of the Lewin Group, a health-care consulting and research firm. “What they worry about is patients who go to see their doctor, learn they have diabetes, and enroll to have the provider pay for their care.”A major problem with guaranteed issue is that, once again, it punishes the young and healthy. If a lot of patients suffering from diabetes and heart conditions enroll in the plan, the average cost rises steeply. Once again, in states like New York, New Jersey, and Vermont, everyone has to pay the same, or nearly the same premiums. That’s not such a problem for older people because they’ll still pay less than what they really cost. But it’s a burden on the healthy population, and especially the young. To be sure, America must help diabetes patients pay for their expensive care, and we’ll tell you how in a minute. But the costs shouldn’t be inordinately born by young Americans just starting their careers at relatively low salaries.The Obama plan would make all three of these big inflators the law of the land. The free-market solution is to let freedom ring by eliminating all three restrictions. Here’s an elegant solution: Allow consumers to buy insurance across state lines — a freedom that’s now banned and would stay banned under Obamacare. Today, a 25-year-old in New York pays six times as much for coverage as someone the same age in Kentucky. If the restriction on nationwide shopping were abolished, New Yorkers could buy their policies at a fraction of the current cost in Illinois or Pennsylvania. Business would flow to the least-regulated, lowest-cost markets. That would be a big victory for deregulation.3. Protect people with pre-existing conditionsCreating a true national market is essential to my proposal. But the free-market solution will work only if it overcomes a huge obstacle: protecting people with pre-existing conditions. The numbers are hard to get, but a good estimate is that several million Americans suffer from cancer, diabetes, or another chronic illness. Many of them are now insured by their employers. Those companies don’t charge them any more for insurance than they do their younger colleagues.Remember, under my proposal, employers will drop their plans and put the money they now spend on health care into their workers’ paychecks. So let’s take a middle-income worker with diabetes. Today, in New York State, he or she would be covered, because the patient could enroll in a plan required to take all comers and could not be charged any more than a healthy 30-year-old.But once consumers can shop across state borders, the young people who subsidized those with pre-existing conditions will flee to low-cost plans offered in other states. Community rating would disappear. In theory, the diabetes sufferer would face a huge increase in premiums. America can’t allow that to happen.It’s clear that to make a mostly free-market plan work, those with chronic illnesses need to be protected. Fortunately, the template is already in place. About 30 states, usually those without requirements for community rating or guaranteed issue, have high-risk pools that automatically enroll people with pre-existing conditions. Their premiums generally can’t exceed 150% of the average plan within the state, even though the patients may actually cost far more. The full costs of the high-risk pools are covered from state income- and sales-tax revenues.Under a free-market plan, states that don’t now have high-risk pools would create them, modeled after the models that work best. The problem posed by pre-existing conditions would be temporary. As consumers start spending their own money on coverage, the market would explode with creative insurance plans. It’s likely that carriers will offer plans like the ones in Europe that offer coverage for as much as 40 or 50 years. Under those policies, in exchange for making essentially a lifetime commitment to the insurer, the consumer pays a specified schedule of rates that cannot be changed.4. Don’t forget the supply sideMany elements of this free-market model are included in two excellent plans. One is Sen. John McCain’s proposal as a candidate. But McCain didn’t take on the problem of pre-existing conditions that’s a linchpin of any reform package.Today, the best solution is the one proposed by a group of Congressmen, including Paul Ryan, a Wisconsin Republican. It would include most of the elements I’ve recommended. But what the Ryan plan misses — as did the McCain platform — is the importance of reforming laws that limit the supply of medical services.Indeed, giving health-care consumers control over their own money — the money employers now spend for them — would create a true market where bargain prices and high quality should reign. That’s “should.”But deregulating the demand side isn’t enough. Health care is rife with more monopolistic restrictions than any other industry: certificate-of-need laws that restrict the number of hospitals in states from California to New York, medical-licensing restrictions that prevent nurses and other practitioners from providing basic care, and limitations on the number of physician specialists. Believe it or not, it has practically become gospel in medical circles that shrinking the doctor supply is a way to save money. At best, it’s extremely dubious economics to think that shrinking the supply of anything can reduce costs!Deregulating the supply side isn’t even part of the health-care debate at the moment, yet it’s crucial to our free-market model. The Obama plan does nothing to ease these restrictions and, in fact, is offering the providers more monopolistic protections to support the plan.Next up: What kind of health plans can Americans expect without the fading “public option?” Hint: Obamacare isn’t nearly as good of a deal for the middle-class as advertised.Read Shawn Tully’s first installment here: Designing the ideal health care system

Source:CNN

(Fortune Small Business) — Nearly half of American firms are home-based businesses. But according to a National Federation of Independent Business survey, only 46% of them take a home office tax credit. Why are they balking? The deduction process — which involves measuring the office as a percentage of home size and multiplying relevant expenses by that fraction — is just too complicated, the survey found. To ease the process, Reps. John McHug, R-N.Y., and Kurt Schrader, D-Ore., introduced the Home Office Deduction Simplification Act last spring. The bill would create a standard 1,500 deduction, which owners could opt for over the messier version. It would translate into a tax savings of about 500 for those who aren’t currently taking the deduction, says Keith Hall, tax adviser for the National Association for the Self-Employed. Similar bills have died in Congress before, but there’s hope this time around: Twenty-eight representatives — twice as many as last year — are cosponsoring the current version. “Every dollar spent on an excessively burdensome tax process is a dollar not spent on hiring new workers,” Schrader said.

Source:CNN

NEW YORK: Wall Street has spiked nearly 50% in less than five months — and that’s both good and bad.The advance has been driven by factors including relief that the financial system is not about to implode, signs that the economy is recovering, and most recently, a spate of positive earnings surprises. On Friday, the July jobs report showed the labor market is starting to show signs of bottoming. The advance has left the major stock gauges at more than 9 month highs, but it’s also left stocks vulnerable to a bigger pullback as some investors consider bailing out after such a big run. “We’ve gone from pricing in a depression, a recession, and now a recovery, in only five months,” said Jeff Kleintop, chief market strategist at LPL Financial.He said that investors are feeling more enthusiastic, but some of the enthusiasm is going to be capped by the fact that the market has already gone a long way toward accounting for those recovery hopes.In addition, the recent spike in commodity prices has reintroduced the topic of inflation, something the Federal Reserve may address at its policy-meeting this week.Other than a brief pullback in late June-early July on jitters ahead of the quarterly results, the market has basically been on the rise since bottoming on March 9. After closing at more than 12-year lows, the S&P 500 has now risen just shy of 50% as of Thursday’s close.Fed meeting: The central bank holds its two-day policy meeting this week, with a decision on interest rates and a statement due for release Tuesday at around 2:15 p.m. ET. The central bank is widely expected to keep the fed funds rate, a key overnight bank lending rate, at historic lows near zero. But as always, the bank’s statement has the power to move markets. Fed chief Ben Bernanke has said that the bank will keep taking steps to assure a bottom in markets and the economy, but will stay mindful of inflation, said Wan-Chong Kung, senior fixed-income portfolio manager at FAF Advisors. The statement Tuesday is likely to echo that theme. “I think they’ll continue to assure investors that the Fed won’t fall asleep at the switch on inflation, but also won’t take away what’s been helping to support the recovery,” she said. Quarterly results: Dow component Wal-Mart Stores leads the list of retailers reporting quarterly results this week, as the profit reporting period winds down.”This week is heavy with retailers and with the consumer in focus for the markets, it will be important,” said John Butters, senior research analyst at Thomson Reuters. He said Wal-Mart’s earnings in particular will be closely watched, as it is something of a proxy for the consumer.Currently, 73% of companies have reported better-than-expected results versus the long-term average of 61% of companies. Should that number hold up, the second quarter would tie with the first of 2004 for the highest percentage of positive earnings surprises. But better-than-expected results doesn’t mean corporate profits are recovering just yet. With 85% of the S&P having reported results, profits are currently on track to have fallen 28.3% from a year ago, according to earnings tracker Thomson Reuters. That stretches the number of consecutive quarters of profit declines to 8, the worst in Thomson’s 15 years of tracking, said John Butters, senior research analyst at Thomson Reuters.0:00
/3:12Oil prices endanger recoveryTreasury auctions: The U.S. government is auctioning 75 billion in debt as it works to fuel the budget deficit and economic recovery efforts. Treasury will offer 37 billion in 3-year notes Tuesday, 23 billion in 10-year notes on Wednesday and 15 billion in 30-year bonds on Friday.Investors will be watching to see what kind of demand the auctions get, particularly as the government was initially expected to announce a larger offering. On the docketMonday: There are no market-moving economic reports scheduled for Monday.Tuesday: The Labor Department releases the initial reading on second-quarter productivity in the morning. Business productivity is expected to have gained 4.9% after rising 1.6% in the previous month, according to a Briefing.com survey of economists. Unit labor costs are expected to have fallen 1.9% in the quarter after rising 3% in the first quarter.The June wholesale inventories report from the Commerce Department, due in the morning, is expected to show a decline for the 10th month in a row, dropping 0.9% after falling 0.8% in May.The Fed meeting gets underway in the morning, concluding Tuesday.After the close, Applied Materials (AMAT, Fortune 500) releases results. The chipmaker is expected to report a loss of 8 cents per share, according to Thomson Reuters. Applied Materials earned 15 cents a year ago.Wednesday: Due in the morning, the June trade gap, from the Commerce Department, is expected to have widened to 28.5 billion from 26 billion in May, a 10-year low. The weekly oil inventories report from the Energy Information Administration is due in the morning and the July Treasury budget is due in the afternoon. The Fed decision is due at around 2:15 p.m. ET.Thursday: July retail sales, released by the Commerce Department, are expected to show modest growth. Sales likely rose 0.3% after rising 0.6% in June. Sales excluding volatile autos are expected to have written 0.1% after rising 0.3% in June.The weekly jobless claims report from the Labor Department is also due in the morning, along with readings on July import and export prices and June business inventories.Wal-Mart Stores (WMT, Fortune 500) releases its quarterly results before the start of trade. The Dow component is expected to have earned 86 cents per share, just as it did a year ago.Friday: The Consumer Price Index (CPI) for July is expected to come in unchanged, as inflationary pressure remains benign. CPI rose 0.7% in June. The so-called Core CPI, which strips out volatile food and energy prices, is expected to have risen 0.2% after rising 0.2% in June. The Labor Department releases the report.After the start of trading, the University of Michigan releases its initial reading on consumer sentiment in August. The index is expected to have risen to 68.5 from 66 in late July.Readings on July industrial production and capacity utilization are also due.

NEW YORK: omg! twitter’s down! what did shaq eat 4 lunch? i don’t know. but who cares? tweets are junk food 4 brain. where’s the biz, biz? aykm?would u pay for tweets? r advertisers that interested in this “content?” this is the 2009 version of the pet rock. this too shall pass.sure. tweeting in iran is great. bravo 4 free speech! but does that make twitter the next goog, aapl, or msft? i don’t think so.what’s the diff btw twitter and newspapers? it’s cool 4 twitter to lose money, not a sign of impending obsolescence. how long can that last?what’s up with the fail whale? a cute aquatic mammal pops up to cheerily let people know u r slow? huh? maybe aol should have tried that.rant over. time for vaca. plan 2 relax. ignore web and crackberry. read a book or 2. thought u should know. buzz will be back on 8/17. bye.Talkback: Is Twitter the next Google? A passing fad? Neither? What do you think about Twitter. Share your thoughts below.

(Fortune Small Business) — Would you consider launching or growing a business in the midst of the Great Recession? Some would applaud your courage; others might think you had a few loose screws. And yet economic downturns have often been fertile ground for innovation and entrepreneurship. More than half the companies on the 2009 Fortune 500 list were launched during downturns, according to recent research by the Kauffman Foundation. Economists offer many reasons for this phenomenon: Corporate layoffs release entrepreneurial talent, the decline of old industries creates opportunities in new ones, and so on. Still, recessionary entrepreneurship is not an easy game. What does it take, psychologically, to pull it off? Jim Kremens, 42, runs a New York City-based software startup called Fhtml. His product, Fluid HTML, is a Web markup language designed to be an alternative to standard Flash animation. He plans to exit stealth mode this fall. Although Kremens has secured buzz, startup capital and encouraging responses from top-tier companies, Fhtml’s success is not assured, especially in this brutal economy. “I’ve been working on this project for a long time,” he told me recently. “It evolved into something very real and more powerful than I originally thought. Entrepreneurs like me have to think we’ve got some kind of game changer. That belief, valid or not, drives innovation.” The impulse toward distinction and accomplishment is very powerful (although its psychological sources are different for everybody). Under the right circumstances it can help entrepreneurs turn inspiration into reality. If it were that simple, mind you, Edisons and Bells would be a dime a dozen. “This is a high-risk endeavor,” Kremens says. “It’s frightening to come home to my kids and wonder what I’ll do if this doesn’t work.” Yet Kremens finds the challenge energizing. Why? Like other pioneering entrepreneurs, he combines ambition, optimism, fortitude, resilience and confidence. At the other end of the spectrum, however, you find entrepreneurs whose personalities prevent them from capitalizing on the opportunities that all economic crises create. Paul F., 37, owns several high-end fitness centers in the Baltimore-Washington area. (I’ve changed his name and other identifying details here.) Paul was looking to add locations, as prime real estate was plentiful and affordable and construction costs were low. But his customers — mostly white-collar professionals — were cutting back or searching for work. If he built, would they come? Paul couldn’t make up his mind, and as a result his expansion plans were going nowhere. This would be a tough call for any business owner. For Paul, however, there was more to the problem than calculating risk and ROI. A champion high school and college athlete, he felt that the initial leap from sports to business was trivial. “I train hard and play to win,” he told me during our first consultation. “This field just uses different muscles.” Paul had no trouble making tough decisions before the recession. Why was this decision different? The economic crisis brought out the powerful dread of weakness that lurked beneath his muscular bravado. Where did it come from? When Paul was seven years old, his father, a successful Ivy League-educated financier, suffered a debilitating mental breakdown. Feeling sad, betrayed and angry, Paul vowed never to become like his dad. Problem is, you can’t try not to be like somebody (psychoanalysts call this “disidentification”) without always keeping that person in mind. When Paul tried to be decisive and powerful, he was actually trying not to feel weak and stuck — the way he felt when his father collapsed. In sports, relationships and business, that impulse drove him to create artificial crises in which he could make decisions that would help him feel powerful. In this case Paul faced a real economic crisis and a real opportunity, and he didn’t know what to do. This story ends well: Paul mustered the strength to acknowledge his weakness and reach out for professional help. By the way, don’t underestimate how hard this is. Confronting unconscious obstacles, then changing patterns and responses, is seriously tough. My Recommendation: Remember that not all your business to-dos are about doing; understanding why is equally essential. Next time you’re at the proverbial crossroads, think about what I’d be asking you: What’s really happening here, and why? Oh, and Paul’s fitness center business? He decided to expand. Alexander Stein, Ph.D., is a practicing psychoanalyst in New York City and a principal in the Boswell Group, a consulting firm.

Source:CNN

NEW YORK (Fortune) — One of the things they teach in Successful Investing 101 is to cut your losses short and let your winnings run. But when it comes to the Troubled Assets Relief Program, the government is stuck doing the opposite. Its gains are being cut short, because its most profitable investments are being closed out, yet its losses will continue running.The big gains come from stock-purchase warrants that Congress insisted the Treasury get as part of the 244 billion of TARP loans it made to 662 banks and bank holding companies. Warrants, which give holders the right (but not the obligation) to purchase stock at a fixed price for a fixed period, are designed to offer taxpayers a chance to make some serious money if the stock prices of the bailed-out banks rise.To induce relatively sound banks to borrow, the Bush Treasury Department adopted very liberal rules on the warrants, giving early TARP repayers the right to force the government to sell them back rather than continue holding them. The price is determined by negotiation, auction, or complicated appraisal proceedings.The government’s two biggest scores — 26% a year from American Express (AXP, Fortune 500) and 23% from Goldman Sachs (GS, Fortune 500) — came from Amex and Goldman having redeemed their warrants for 340 million and 1.1 billion, respectively. Profits on the warrants, which were outstanding for only a brief period, accounted for 21% and 18%, respectively, of those returns. The rest came from the 5% annual borrowing charge for most TARP borrowers.0:00
/3:49Tracking TARPSo far, 34 of the banks that got TARP money have paid it back, according to SNL Financial, a Charlottesville-based research firm whose statistics I’m using throughout this piece, with about half the institutions paying a total of 1.7 billion (including Amex and Goldman) to redeem their warrants. That’s the good news.The bad news is that we’ve now seen most of the good news, because the remaining TARP borrowers — 628 that owe the government 174 billion — are considerably weaker as a group than the ones that have repaid.It’s what economists call “adverse selection.” The strongest borrowers — the ones whose warrants are likely to produce serious profits for the Treasury — are bailing out of TARP as rapidly as possible to avoid pay restrictions and other rules that the Obama administration adopted after inheriting TARP from the Bush administration. These stronger firms would also like to capture as much of their stocks’ potential upside as possible, so they’re trying to buy back the warrants based on today’s share price rather on what they assume will be a higher price in the future.Even though only strong banks were supposed to be deemed TARP-worthy, there are plenty of weaklings in the pool. The biggest: Citigroup (C, Fortune 500), where the government has converted 45 billion of its TARP investment into regular preferred and common stock to try to strengthen the bank. The odds of us taxpayers getting back our 45 billion — plus the 5% to 8% Citi was supposed to pay on its borrowings — are remote. Then there’s the 54 billion in TARP money tied up in GMAC (GJM) and American International Group (AIG, Fortune 500). Not exactly prime credits.Finally, there’s my favorite: 17 borrowers that SNL Financial says have failed to pay the dividends due on their total of 500 million of TARP borrowings. I’m sure we can kiss a good part of that money goodbye.The government still has some warrant gains to collect — 16 firms, including JPMorgan Chase (JPM, Fortune 500), have repaid their TARP borrowings but the government still hasn’t sold the warrants — but I doubt we’ll see percentage returns anything like what we got on Amex and Goldman.Even if the government gets the 1.1 billion value that the TARP Congressional Oversight Panel places on the JPMorgan Chase warrants, we’d have a far lower return than on Amex and Goldman. That’s because these firms bought their warrants for 10% and 11%, respectively, of their TARP loans, while 1.1 billion is only about 4% of JPMorgan’s 25 billion TARP borrowing.So let’s be happy with what we’ve gotten for our warrants, taxpayers. But let’s not kid ourselves. TARP was designed to bail out the financial system, not to make money. If we break even, we’ll be doing well.

Source:CNN

(Fortune Small Business) — Some people need a kick in the pants before they change course. For Carlos Salgado, 41, it took a knock on the head. In 1998, the art handler and sculptor was working at the Guggenheim Museum SoHo in New York City. One moment he was disassembling a 400-pound steel sculpture by Italian artist Fabrizio Plessi; the next he was lying on the floor. Part of the massive artwork had fallen on his head. Healing was a slow process. Fighting his workers’ comp case was an even slower one. Salgado was relegated to his couch, where he found himself devouring books on furniture design and mulling a career change. By the time he’d healed from the accident, an entrepreneur was born. Salgado got together with fabricator Bart Bettencourt. Together they hatched a plan: Turn salvaged scraps into sophisticated furniture. The partners called their fledgling company Scrapile. In 2003 they unveiled their laminated-wood creations at two design shows before they even had a business plan. When orders started piling up, they had to develop an efficient production strategy, and fast. “Our initial products were too labor-intensive,” Salgado recalls. Advice from fellow artisans streamlined their method for assembling scraps into large planks. Last year Scrapile brought in 80,000 in revenues. Now the company hopes to expand by repurposing waste streams from manufacturers of crystal, ceramics and glass. The Future Perfect, a design store in Brooklyn, has carried Salgado and Bettencourt’s furniture since the beginning. Owner David Alhadeff is impressed with the company’s evolution so far. “They have gone from offering a simple form made out of very beautiful material to making one-of-a-kind, gallery-worthy objects,” he says.

NEW YORK (Money) — Question: I’m in my 30’s and have a 401(k) from a previous job, 75% of which is invested in a variety of stock portfolios. Although my stock holdings have recovered a bit recently, I’m still down about 7,000 from my peak balance. I’m planning to roll over this old 401(k) into either the 401(k) at my new job or into an IRA account, but I’m wondering whether I should do the rollover now while stocks are still cheap or wait until the market has recovered and then do it. What do think? –Todd Gerecke, Lynden, WashingtonAnswer: I’ve been getting a lot of questions lately from people who worry that poor timing when doing a 401(k) or IRA rollover — or, for that matter, even transferring money from one taxable account to another — might undermine their potential future returns.But this angst is unnecessary. As long as you reinvest the money the same way after the rollover as you have it invested before the rollover, it really doesn’t matter when you transfer it. The return you earn will be the same.As long as you haven’t changed how your money is divvied up between stocks and bonds, you’re going to earn the same return regardless of where that money sits.But just so there’s no doubt, here’s an example.Let’s say you’ve got 100,000 in an old 401(k) — 75%, or 75,000, is invested in a Standard & Poor’s 500 index fund while 25%, or 25,000, is in a total bond market fund. And let’s assume that over the course of a year, stocks stage a rally and gain 20%, while bonds return a more modest 5%.If you leave your money in the old 401(k), at the end of the year your balance would be 116,250 (75,000 plus a 20% return equals 90,000 in stocks; 25,000 plus a 5% return equals 26,250 in bonds.)If you then roll over your 401(k) balance at the end of that year to your new 401(k) or IRA, your new account will start with a balance of 116,250.But what if, instead of keeping your dough in your old 401(k), you rolled over your 100,000 into your new employer’s 401(k) or an IRA? As long as you reinvested 75% of the rollover proceeds in an S&P 500 fund and 25% in a total bond market fund, you would start out with the same amount in (75,000) in stocks and bonds (25,000), earn the same 20% return on stocks and 5% return on bonds, and end up with the same balance of 116,250.So you end up with the same balance either way.I didn’t want to complicate things by throwing new contributions in. But as long as those contributions flowed in at the same time and went into stocks and bonds in the same proportion, they would earn the same return in either account, leaving you with the same balance either way.Taking a bite out your balanceGranted, there are a few factors that could change the result somewhat from what I’ve outlined here. If there’s a lag period from the time it takes to move your money, then the balances you would have at the end of the year could differ. But the difference could go either way. If the market went down while the money was in transit, you would be better off having moved the money since you would have missed at least part of the downturn. The opposite would be true if the market soared during that time. Either way, this isn’t something you can predict in advance. And since it’s purely a matter of chance, it shouldn’t affect your decision.Similarly, if you’re unable to find the exact investments in your new 401(k) or IRA that you had in your old 401(k), then your return between the two options might also differ slightly. The same goes if there’s a disparity in fees. But those differences could also work in your favor (if your new account has better performing investment options and/or lower fees) or against you (if the new account has inferior performers and/or higher fees).In any case, neither of these issues — the time it takes to do the rollover or the difference in investing options — really pertain to the main issue here, i.e., whether you should do the rollover now or wait until the market recovers.One other issue that people also wonder about in this type of situation is whether from a tax point of view it’s better to hold off or move assets after your account value has fallen. But that’s pretty much a non-issue too, regardless of whether you’re dealing with tax-advantaged accounts, as in your case, or taxable accounts.There is an issue you should be concentrating on, however. And that’s whether to roll over your old 401(k) to your new employer’s plan or to an IRA.Either way can work. But, unless your new 401(k) plan has limited investment options or high fees, I think you’re probably better off moving the money to your 401(k). It’ll be easier for you to manage all your retirement money in a coherent way if it’s in one place rather than spread out over different accounts.One final note. When you transfer the money, be sure to have the administrator of your old 401(k) do it as a direct, or trustee-to-trustee, transfer to your new plan. That way, you’ll sidestep the 20% withholding requirement for nondirect rollovers, and you’ll avoid having to come up with 20% of your account balance to complete the rollover.So go ahead and do your rollover whenever you’re ready. There’s no reason to obsess about the timing.

Source:CNN