Three Years Later, Buying MySpace Looks Like One Of Murdoch’s Smartest Bets

by Erick Schonfeld on October 15, 2008

Three years ago today, Rupert Murdoch bought MySpace and its parent company Intermix for $580 million. That turned out to be money well spent. The last time we ran the numbers, we figured that MySpace alone is worth between $3 billion and $20 billion, depending on how much you value each user. Fox Interactive Media (which is mostly MySpace) accounted for about $850 million in revenues last fiscal year (which ended in June), and is projected to hit $1 billion next year.

It was supposed to hit $1 billion this year, but never mind. Unlike other social networks, MySpace is actually making a profit. The company now employs 1,600 people worldwide, compared to 150 in October, 2005—more than a tenfold increase.

The social network has grown as well. MySpace now has 73 million unique visitors a month in the U.S., according to comScore, compared to 24 million three years ago. (Facebook has 41 million). That means MySpace reaches about 40 percent of the online population, compared to 14 percent three years ago. Those visitors, on average, spend 263 minutes a month each on the site, versus 83 minutes in 2005.

MySpace has definitely evolved since 2005. Just this year it has made major strides in opening up its platform to developers, launching MySpace Music, and pushing new forms of social advertising.

The question is whether rival Facebook can catch up to MySpace in the U.S. (it has already surpassed it worldwide), or whether the two will co-exist and diverge, with MySpace being more music- and media-oreinted and Facebook continuing on its path towards becoming the platform for social software. Of course, MySpace would also like to play that role.

Three years from now, which one will be worth more? And will Rupert Murdoch still be smiling?

Canada is Not China

Quote du Jour: Canada is Not China

Canada is not China.

-- An anonymous ex-Fed official explaining U.S. eagerness to find Canadian buyers for U.S. banks. "Fed Trolls Canada to Rescue U.S. Banks"

Fed, major central banks slash rates

LONDON (MarketWatch) -- The U.S. Federal Reserve, the Bank of England, the European Central Bank and other major central banks all moved to slash key interest rates Wednesday as they struggle to head off global financial turmoil that has threatened to throttle world economic growth.

In coordinated announcements, the Fed said it had cut its key lending rate by a half point to 1.5%.

In similar moves, the Frankfurt-based European Central Bank trimmed its key refi rate to 3.75% from 4.25%, while the Bank of England cut its key rate to 4.5% from 5%.

"Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months," the Fed said, in a statement. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

The Bank of Canada, the Swedish Riksbank and the Swiss National Bank also cut rates. The Bank of Japan didn't join in the coordinated move.

The Fed said that while inflation has been high, the rate-setting Federal Open Market Committee believed that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Fed also approved a 50 basis point cut in the discount rate to 1.75%.

FEATURE-Irrigation advances fuel Cambodian rice dream

10.07.08, 8:04 PM ET
Cambodia - By Ek Madra
TRAMKOK, Cambodia, Oct 8 (Reuters) - Sok Sarin flashes a toothless grin as he looks at his newly built house and remembers how the other farmers laughed when he pioneered new rice-growing techniques in his district in southern Cambodia.
Better irrigation, training in how to select seeds and cheap fertiliser made from wild plants and animal or bat droppings have more than doubled the yield from his rice fields to 3.4 tonnes per hectare from 1.5 tonnes.
"No one believed that this idea would work. Now they follow me and they have good harvests," said Sarin, 60.
Cambodia's economy was devastated by civil war from the 1970s to the late 1990s, including four years under Pol Pot's Khmer Rouge, whose dream of transforming the country into a great rice power ended in the nightmare of the "Killing Fields".
Now another agrarian revolution is under way as the government seeks to boost rice exports and cut poverty among its 14 million people, 85 percent of whom are farmers or members of farming families.
Thanks in large part to vastly improved irrigation, Sarin can get two crops a year from his fields, earning him an income of $1,500. Per capita income in Cambodia is around $500.
Sarin's neighbour, Long Yos, 50, said Cambodian farmers were also following methods honed in China, India and the Philippines to breed fish that eat the insects that destroy rice plants.
"The fish eat the insects; we eat the fish when they get bigger," said Yos.
OVER-AMBITIOUS
Better irrigation and the expansion of land use are crucial to government ambitions to produce 15 million tonnes of rice by 2015, more than double the 7 million forecast for 2008/09 and 6.76 million in 2007/08. The main harvest is in November.
According to the U.S. Department of Agriculture (USDA) Cambodia was the world's ninth-biggest rice exporter in 2007 with 450,000 tonnes. Agriculture Minister Chan Sarun says Cambodia could export 8 million tonnes by 2015.
Neighbours Thailand and Vietnam were in first and third places in the export table in 2007 with 9.5 million tonnes and 4.5 million tonnes respectively, according to the USDA.
One rice dealer with a trading house in Singapore estimated Cambodia exported 600,000 to 800,000 tonnes a year, directly or indirectly via Thailand, and could push that up to 1.5 million tonnes in one or two seasons if the government was focused.
"But 8 million tonnes is an entirely different ball game. Obviously, this has to come from increases in area and not just yield," he said.
Another Singapore trader said it would take a lot of money for Cambodia to push yields significantly higher.
"China is the only country in the developing world that has reached 6 to 8 tonnes per hectare. Thailand is at 3.5 tonnes per hectare while India is around 2.5 tonnes," he said.
Analysts in Thailand, while acknowledging how far Cambodia has come already, think its plans are just too ambitious.
"It's possible, but it would not be that easy," Paka-on Tipayatanadaja at Kasikorn Research said of the 2015 target.
"It would take more than a decade to develop not only an irrigation system, but also a logistics system and storage systems," she added.
IRRIGATION
Many Cambodian farmers harvest just once a year because of a lack of water. Vietnam and Thailand, with their superior irrigation, manage two or three crops.
Phnom Penh is investing about $49 million a year on irrigation, said Hang Chuon Naron, an official at the Finance Ministry, but much more is needed.
"Japan and South Korea are helping us but that's not enough," said Chea Chhun Keat of the Water Resources Ministry, adding 1.6 million hectares of 2.6 million under cultivation was irrigated.
Foreign investment is flowing into Cambodia thanks to its cheap labour and the political stability achieved under Hun Sen, prime minister since 1985.
In August, Kuwait agreed loans totalling $546 million, of which $486 million will be invested in irrigation systems and hydro-power on the Stueng Sen river in the northeast of the country.
A Kuwaiti newspaper said Kuwait had leased rice fields to secure food supplies. Qatar also plans to invest $200 million in Cambodian farmland.
"They have the money, we have the land. They wouldn't come if we didn't have agricultural potential," said farm minister Sarun.
Land under cultivation could be pushed up to 3.5 million hectares quite quickly, according to Yang Saing Koma, president of the Cambodian Center for Study and Development in Agriculture.
He pointed to the area round Tonle Sap, Cambodia's biggest freshwater lake with up to 800,000 hectares of potential farm land, much of it unused as a lack of irrigation means farmers can't control water levels: In the rainy season, there's too much, which damages rice plants, in the dry season too little.
There is more land to be worked in the northeast and in the still-mined former battlefields of the northwest.
In all, Saing Koma said, Cambodia had 6 million hectares that might be cultivated for rice and other crops.
The average rice yield per hectare is currently 2.6 tonnes and he said that could be pushed up to 3.5 tonnes -- a yield that Sarin has in his sights thanks to the training, irrigation and bat droppings that have given him two crops a year. (Writing by Alan Raybould; editing by Megan Goldin)

Now the Hard Part - Thoughts from Sam Palmisano, President and CEO of the IBM Group

This is pulled from the the August 2008 edition of the Vietnam Economic Times

The fourth challenge is the toughest of all; winning and hearts and minds. Not primarily of the CEOs and heads of state - they are not the problem. It's not the other management layers, the people who make decisions at the regional and agency levels - and especially the public at large: communities, individuals and populations that do not yet see themselves as the beneficiaries of global integration.

To do that, to make that case, we will need fact-based, reasonable, multilateral approaches. And one other thing: we must recognize that the opposition to global integration really does have a point when it comes to environmental, economic and societal impacts; to job creation, education and skills; to access to connectivity and other resources; and to the inherently global problems of crippling energy costs, unsafe drinking water and pandemic-scale disease. We may differ on the best solutions to these problems, but we can't just keep saying, "Free trade! Free trade!" and think will carry the day. We can't rely on arguments from 1990 or, for that matter, 1890.

This will require multi-disciplinary, cross-boundary dialogue and approaches - not only in business but also in national and geopolitical action and decision making. The problems and the solutions of the global commons, the flattening world, by their very nature cross those old boundaries. We must, too.

Over the past decade we have witnessed a great debate on how societies should deal with competition, conflict and opportunity on a planet that is rapidly integrating. Within policy circles this is often framed as the debate between the so-called "realists" - those who look out and see a future of multiple competing nation-states, where the job at hand is to acheive a "balance of power" - and another view that foresees the rise new superpowers, with one or another of them ultimately achieving dominance.

Neither of those perspectives seems particulary hopeful to me - nor does either of them seem truly global. Happily, over the past few years, a "third way" has emerged. It's often called "soft power" or, more recently, "smart power."

I can attest to the efficacy of this approach. My own company, IBM, was once the paradigm of a business "superpower". We dominated our industry. But such dominance is always fleeting, and outs fled. Yet, unlike most empires that fall, we didn't disappear. Instead, we asked very hard questions, made very hard decisions and reinvented ourselves - becoming far more open, far more collaborative and far less hierarchical.

To me, that's "smart power" within a particular company, and in the world of business.

Google Launches Its Own Memetracker

http://www.techcrunch.com/2008/10/01/google-launches-its-own-memetracker/

by Jason Kincaid on October 1, 2008

Google has just launched a new homepage for its blog search that bears a strong resemblance to Techmeme, Memeorandum and their “memetracker” counterparts. The site displays a listing of the top stories from across a variety of topics including business, politics, technology, and entertainment.

Memetrackers identify emerging trends on the web, especially across blogs. They are often the best way to learn about breaking news stories, as they can automatically monitor hundreds (or more) news sources at once. Major news outlets and user-submitted content sites like Digg often trail memetrackers by days.

Google may well be able to leverage some of the technology it has developed for Google News, which identifies emerging news stories across thousands of sites run by newspapers, television stations, and other media sites. But at this point it’s too early to tell if Google Blogsearch will be more useful than any of the other memetrackers (or if its even in the same league). Much of its utility will lie in how often the listings are updated, how many sources it pays attention to, and how it assesses a blog’s credibility - a memetracker is only as good as the stories it presents.

Google may be able to create a useful tool, but that may not be enough to overcome the established leaders in this space. In 2007 the New York Times launched its own TechMeme killer, which has largely been ignored. There’s something about TechMeme which keeps bringing people back to it.

How The U.S. Government Engineered The Current Economic Crisis

These people (the U.S. government) need to be stopped. Every time we get ourselves into an economic mess, there’s usually some milestone idiocy we can point back to as the government action that made the meltdown inevitable.
Take the current housing crisis that has now spread to the financial markets in general. The cause was too-easy credit that fueled a massive increase in housing prices as people bought houses they couldn’t afford with mortgages they weren’t able to pay off.
In 1999 there was roughly $5 trillion in total U.S. mortgage debt. That number ballooned to $12 trillion by 2007, and we know what happened from there (data is from the U.S. Office of Federal Housing Enterprise Oversight). To put this into perspective, total U.S. GDP is about $11 trillion annually, and U.S. government debt is around $9 trillion. If the housing market really falls apart (meaning more than conservative estimates of a 20% drop), there’s no way the government can simply cover these losses.
Why did it happen? Let’s go back to 1999, when Fannie Mae, the nation’s biggest underwriter of home mortgages, was under pressure by the Clinton administration to find a way to get more loans to “borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans.” A pilot program was launched, which soon became general policy. Money flowed to people who couldn’t afford to pay it back.
These new policies came on top of previous changes in the 90’s that let consumers get zero-down payment loans.
In a 1999 article that now looks absolutely insane, the New York Times reported on the easing of credit terms. Fannie Mae Chairman Franklin Raines, who’s quoted in the article, was all sunshine and roses as he threw away the financial future of millions of Americans. But at least one person. Peter Wallison, had a good idea of how this would all play out:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
Too bad nobody listened to that guy.

What is That Something? -- Avoiding the trap of average incomes

In his proposal for developing supporting industries in Vietnam, Kenichi Ohno has pointed out that Thailand and Malaysia (currently in the second phase) are more successful than Vietnam because as these countries industrialize, they fleshed out suitable policies to make the optimal use of
FDI however, they have not reaped much success in the second period and have even failed, because of the $1,000 per capita "trap." Despite decades of industrialization, the competitive capacity of their private sector still leaves much to be desired. Excessive reliance on foreign assistance, which has not been translated into their own strengths, has hampered their efforts to "internals" the value and capabilities of domestic supporting industries. There remains a hugh risk that FDI capital will flow out of these countries and pour into China, India and Vietnam instead.

What Vietnam needs to avoid this trap is a slew of judicious policies, as well as a dynamic private sector. The raft of actions which Ohno proposes includes enhancing the capabilities of each enterprise; developing human resources, both general and institutional; offering incentives; establishing linkages between foreign-invested enterprises and domestic businesses; promoting FDI; and building a policy framework for different types of enterprises.

In this action plan small and medium enterprises play a crucial role. At present, Japan is helping Vietnam study the capabilities of each domestic supplier in the next three of five years. Kyoshiro suggests that the Government should identify capable private enterprises and establish a specialized agency to oversee the development. These businesses should receive the same treatment as State-owned enterprises in terms of aid, access to capital sources and other incentives, as they are able to increase the competitiveness of Vietnam's industries. This will also boost the transformation of production mechanisms and task allocation among enterprises, creating a series of links in the domestic production chain and paving the way for Vietnam to join the global value production chain.

Vietnam Stats: Telecommunication Usage

From General Statistics Office - 8/2008

Phone Subscribers - 67.1 million

Internet Subscribers - 6.2 million

Internet Users - 29.7 million

China tainted milk crisis triggers global recalls

http://www.forbes.com/feeds/ap/2008/09/24/ap5467187.html
BEIJING -
An industrial chemical that made its way into China's dairy supplies and that authorities blame in the death of four babies has turned up in numerous Chinese-made exports abroad - from candies to yogurt to rice balls.
British supermarket chain Tesco removed Chinese-made White Rabbit Creamy Candies off its shelves as a precaution amid reports that samples of the milk candy in Singapore and New Zealand had tested positive for melamine - an industrial chemical used to make plastics and fertilizer.
Chinese baby formula tainted with the chemical has been blamed for the deaths of four infants and the illnesses of 53,000 others in China. Health experts say ingesting a small amount of the chemical poses no danger, but melamine can cause kidney stones and lead to kidney failure. Infants are particularly vulnerable.
More than a dozen countries have banned or recalled Chinese dairy products - the latest was France which does not import Chinese dairy products but has halted imports of Chinese biscuits, candy or other foods that could contain Chinese dairy derivatives. The government described the measure as a precaution.
Indonesia on Wednesday also distributed a list of 28 products that it said may contain tainted Chinese milk, including Oreo cookies, Snickers bars and M&M chocolate candies.
U.S. and European consumer safety officials urged Beijing to better enforce product safety standards.
Tesco said that it had withdrawn White Rabbit Creamy Candies off its shelves as a precaution. The candies had been sold in a small number of Tesco's British stores as part of the supermarket's ethnic range.
New Zealand's Food Safety Authority recalled White Rabbit candies after tests showed they contained dangerously high levels of melamine and advised people not to eat them.
"This product contains sufficiently high levels of melamine which may, in some individuals, cause health problems such as kidney stones," deputy chief executive of the authority, Sandra Daly, said in a statement.
New Zealand expected all White Rabbit sweets to be off shelves within 24 hours and was testing numerous other products for melamine contamination, said Food Safety Authority spokesman Geoff Allen.
"We are looking at a wide range of products ... primarily baby formulas as they pose the highest risk, and now we're moving through all the other .... products that may contain adulterated milk," he told National Radio.
Melamine has been found in infant formula and other milk products from 22 Chinese dairy companies. Suppliers trying to cut costs are believed to have added it to watered-down milk because its high nitrogen content masks the resulting protein deficiency.
Singapore's Agri-Food and Veterinary Authority, known as AVA, recalled White Rabbit candies earlier this week and said Wednesday that more Chinese-made food had tested positive for melamine, including Dutch Lady-brand banana and honeydew flavored milk, Silang-brand potato crackers and two kinds of puffed rice balls.
The crackers and rice balls listed milk as ingredients.
The U.S. Food and Drug Administration said White Rabbit candy has been added to its list of products being inspected at ports of entry, but that no melamine-tainted goods from China of any sort have turned up yet. Nonetheless, some ethnic grocers started removing the popular candies from their shelves.
A woman who answered the phone at AsianFoodGrocer.com in San Francisco said the company is no longer selling White Rabbit candies. "Everything has been taken off-line," said the woman, who would not give her name.
In New York Wednesday, China's premier sought to ease the growing concern abroad over the growing crisis over Chinese food exports by vowing to strengthen product safety checks and meet international standards.
China needs to better enforce checks at every stage of production and step up efforts to protect consumer interests, Premier Wen Jiabao said on the sidelines of a meeting of the U.N. General Assembly.
"We want to make sure that our products and our food will not only meet the domestic and international standards, but also meet the specific requirements of the import countries," Wen said at an event organized by American organizations.
Also Wednesday, a Chinese official issued a public apology to consumers in Taiwan as the island's president, who won March elections on a platform of closer economic ties with the mainland, blasted Chinese milk producers.
"I condemn the mainland manufacturers that have produced fake milk and dairy creamer," Ma Ying-jeou said.
Authorities there ordered 160 products containing Chinese milk and vegetable-based proteins off store shelves, saying the goods had to be tested before they can go back on sale.
"We feel extremely painful about the damage that the milk powder brought to people in Taiwan. Our government attaches great importance to it and is taking a series of measures to minimize the damage and influence," said Li Weiyi, a spokesman for the State Council Taiwan Affairs Office.
Speaking in China, where U.S. and European officials were attending seminars on product safety, a U.S. official said China's troubles with contaminated milk highlight the need for better enforcement of product safety standards in manufacturing.
"The melamine situation just underscores the message that we are trying to deliver, and that is you have to know what's coming into your factory and what's going out of your factory," said Nancy Nord, acting head of the U.S. Consumer Products Safety Commission.
The Chinese government has been scrambling to show it is tackling the problem. In recent days, the government announced high-profile arrests and forced resignations of officials.
The dairy at the center of the scandal, Sanlu Group Co., will not be able to recover from the damage it has suffered to its reputation, its New Zealand partner said Wednesday. An investigation into the contamination found Sanlu received complaints about its infant formula as early as December 2007 and covered up the problem for months, state media reported earlier this week.
The Chinese government has taken control of Sanlu, which is 43 percent owned by New Zealand's Fonterra Cooperative, and shut down its operations, Fonterra Chief Executive Andrew Ferrier said at a briefing. Sanlu is based in northern China's Hebei province.
"Sanlu has been damaged very badly by this tragedy," Ferrier told reporters as he announced Fonterra's annual results. "The brand cannot be reconstructed."
There was no immediate response Wednesday from Sanlu. Several calls during the day were answered by temporary workers in the company's media department who took down questions but said it was up to senior company officials to decide whether to reply. The workers refused to give their names, which is common among Chinese employees.
__
Associated Press writers Ray Lilley in Wellington, New Zealand contributed to this report

France bans food containing Chinese milk products

http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/25/afx5468678.html
PARIS, Sept 24 (Reuters) - France said on Wednesday it was banning all food items containing Chinese milk products as a precautionary move following a tainted milk scandal.
The European Union does not import milk or milk products from China. France's measure targets foodstuffs that contain Chinese dairy products as an ingredient.
'The public authorities have decided... to adopt further precautionary measures for all products incorporating milk derivatives of Chinese origin,' the French agriculture and economy ministries said in a statement.
'These products will have to be withdrawn from the market and will not be able to be put on sale,' they added.
Many countries have restricted Chinese food imports since the emergence of tainted milk in China which has made more than 54,000 children sick.
The French statement was issued a day after Italy announced similar measures and shortly before Europe's top food safety agency is due to say whether food products such as those targeted by the French are safe.
The European Commission has asked the European Food Safety Authority to issue a scientific opinion on whether processed items containing milk products from China pose a risk to human health, and the announcement is expected this week.
France introduced checks last week to ensure no baby milk of Chinese origin was present on the French market, and the ministries said no such products had been found yet.
(Reporting by Francois Murphy; Editing by Giles Elgood) Keywords: CHINA MILK/FRANCE

Goldman to Raise Capital, With $5 Billion From Buffett

http://www.nytimes.com/2008/09/24/business/24goldman.html?_r=1&hp&oref=slogin

Published: September 23, 2008

Warren E. Buffett, the country’s most famous investor and one of the world’s richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan, in a move that could bolster confidence in the financial markets.

Statement From Goldman Sachs (goldmansachs.com)

Until now, Mr. Buffett, who has navigated the stock market with legendary prowess, has largely refrained from investing in the stricken financial industry, saying repeatedly that things could get worse.

Thousands of people on and off Wall Street follow Mr. Buffett’s moves, so his decision to invest in Goldman immediately heartened investors. After falling nearly 1.5 percent during the day, the Standard & Poor’s 500-stock index erased half its loss in after-hours trading Tuesday evening on news of the investment.

“Buffett is saying he’s confident,” said Brad Hintz, an analyst at Sanford C. Bernstein & Company.

Mr. Buffett’s conglomerate, Berkshire Hathaway, unveiled the move only days after Goldman, long the premier investment house on Wall Street, embarked on a radical plan to transform itself into a traditional bank to ensure its survival. Goldman, which examined various options over the last week as its shares tumbled and some clients abandoned the firm, also said Tuesday it would sell at least $2.5 billion of common stock to the public.

Since credit markets tightened more than a year ago, Mr. Buffett had stayed his hand even as other investors, including government-controlled funds from the Middle East and Asia, poured money into American financial companies like Citigroup and Merrill Lynch, only to see their investments plunge in value.

Such wariness is a hallmark of Mr. Buffett’s investing style, and many on Wall Street have wondered when he might jump in. Over the last four decades, he has built Berkshire, which is based in Omaha, into one of the world’s largest and most successful insurers. Along the way, he has also assembled a stable of holdings in widely known companies like Coca-Cola and the Washington Post Company, and more recently has increased his stakes in energy concerns and railroads.

Mr. Buffett, who plans to donate the vast majority of his fortune to charity, is known for his folksy guidelines for proper corporate governance and his investment expertise. His annual meetings are fondly referred to as the Woodstock of American capitalism by his many acolytes.

But Mr. Buffett, 78, has also learned from past mistakes in the financial sector. For instance, Berkshire’s 1998 acquisition of General Re, the insurance company, was marred by a portfolio of complex derivative securities and state and federal investigations into reinsurance policies written by the company. Salomon Brothers, the Wall Street firm that Mr. Buffett was pressed by the government to lead in the early 1990s amid a trading scandal, was another taxing experience.

But Goldman is a classic Buffett play: It is a blue-chip institution, with a premier brand and long, successful history, that has been beaten down in the stock market, and one that he is investing in on very favorable terms. Goldman’s share price has fallen nearly 42 percent this year, and reached a peak of $247.92 less than a year ago.

Mr. Buffett, in the statement, called Goldman Sachs an exceptional institution.

“It has an unrivaled global franchise,” Mr. Buffett said, “a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Still, Mr. Buffett is not taking big risks based on the structure of the investment.

Berkshire Hathaway will receive perpetual preferred shares in Goldman, which will pay a 10 annual percent dividend, or $500 million a year. Those dividends take precedence over other payments to common shareholders. Goldman has the right to buy back the shares at any time for premium of 10 percent.

In addition, Berkshire Hathaway will receive warrants to buy $5 billion in common stock at a strike price of $115 a share, which can be used at any time in a five-year period. Those warrants are already in the money: Goldman shares closed Tuesday at $125.05, up $4.27, and rose to $134.75 in after-hours trading after Mr. Buffett’s investment was announced.

While Mr. Buffett’s risks may be limited, he is investing in Goldman at a time when many fear the bank’s long-run of soaring profits may be coming to an end. As a federally regulated bank holding company, Goldman may not be able to take the kind of risks that have yielded profits and bonuses that defined Wall Street’s latest Golden Age.

Goldman’s move came a day after a rival investment bank, Morgan Stanley, raised about $8 billion by selling up to a 20 percent stake to Mitsubishi UFJ Financial Group, Japan’s largest commercial bank. Goldman was widely expected to follow suit.

“We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. We view it as a strong validation of our client franchise and future prospects,” the chief executive of Goldman, Lloyd C. Blankfein, said in the statement. “This investment will further bolster our strong capitalization and liquidity position.”

For Mr. Buffett, the move is a long-awaited investment in a big financial firm. Though he has struck several deals since the credit market tightened — and in two deals actually provided financing — he has not invested heavily in the financial services sector. He has been approached several times, including by the American International Group, the giant insurance company the government has since rescued.

Goldman, Morgan Stanley Buy Time for Deals by Becoming Banks

http://www.bloomberg.com/apps/news?pid=20601103&sid=aXdM4uWfeQDY&refer=news

By Christine Harper

Sept. 23 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley have won a respite from investor panic by transforming themselves into bank holding companies.

The change in status allows the last two major independent investment banks on Wall Street to take advantage of different accounting rules, gives them more access to federal funds and buys them time to stabilize their funding base by acquiring deposits, analysts said.

``The move appears aimed at improving market confidence but does not, in our view, signal a major change in the business model,'' Richard Staite, an analyst at Atlantic Equities in London, wrote in a note to investors yesterday. ``The move provides Goldman with time to continue the process of de-risking itself to a level deemed suitable by the market.''

Instead of carrying all of their loans, bonds, stocks and other assets at market value, as investment banks are required to do, the two New York-based firms can now avoid further writedowns by moving some assets into their banking units. They will also gain the ability to borrow from the Federal Reserve indefinitely, an improvement over the primary-dealer credit facility that is scheduled to expire in January.

Now it's up to the banks to raise enough capital and attract enough stable, low-cost deposits to reassure investors that market gyrations won't drive them out of business. Morgan Stanley said yesterday that it plans to sellas much as 20 percent of the firm to Tokyo-based Mitsubishi UFJ Financial Group Inc. for $8.4 billion. Goldman has no immediate plans to raise capital, although it may decide to if it finds attractive investment opportunities, spokesman Lucas van Praag said yesterday.

Deposit Bases

The S&P 500 Financials Index dropped 8.5 percent yesterday as investors lost confidence that a proposed U.S. $700 billion government bailout would solve the industry's bad-debt problem. After dropping 27 percent last week, Morgan Stanley's stock was little changed yesterday. Goldman's shares, which fell 16 percent last week, dropped 7 percent.

The deposit bases of Goldman and Morgan Stanley, at $20 billion and $36 billion respectively, are much smaller than those of their largest bank competitors, according to David Hendler, an analyst at CreditSights Inc. in New York.

Morgan Stanley's deposits amounted to about 4 percent of the firm's liabilities at the end of August, while Goldman's amounted to 2 percent of liabilities, Hendler wrote in a note to investors yesterday. At larger banks, deposits typically account for between 40 percent and 60 percent of liabilities, he wrote.

``We cannot rule out that these companies could pursue bank acquisitions in order to increase their deposit funding more in- line with a typical bank,'' Hendler wrote. Yet their depressed stock prices may make Goldman and Morgan Stanley reluctant to enter deals ``until some premium has been restored.''

`Marketplace Certainty'

Both firms issued statements after the Fed approved their applications that stressed how the change would improve their image with investors. ``We understand that the market views oversight by the Federal Reserve and the ability to source insured bank deposits as providing a greater degree of safety and soundness,'' Goldman said in a statement on Sept. 21. John Mack, Morgan Stanley's chairman and chief executive officer, said the change ``offers the marketplace certainty about the strength of our financial position and our access to funding.''

Goldman Sachs, now the fourth-largest U.S. bank by market value, is more interested in buying deposits than in buying entire banks, according to a person familiar with the firm's thinking. The firm sees opportunities to buy deposits in the wholesale market and also to buy deposits of failed institutions, such as IndyMac Bancorp Inc., that are under the control of the Federal Deposit Insurance Corp., the person said.

Reducing Leverage

Morgan Stanley said it plans to ``pursue initiatives to expand the retail banking services it offers its retail clients and build a stable base of core deposits.''

In return for the advantages accorded by their new status, Goldman and Morgan Stanley won't have to change much about the way they operate. Neither firm is being required to dispose of non-financial assets, such as commodities or stakes in companies, that banks normally are prohibited from owning, for at least two years, according to the Federal Reserve orders.

Efforts by the companies to reduce their so-called leverage, or ratio of assets to shareholder equity, are more about trying to reassure markets than to meet any requirements imposed by the Fed. Instead of monitoring gross leverage, the Fed looks at firms' Tier 1 capital ratios, which measure capital requirements based on the riskiness of assets. Both firms exceed the 6 percent Tier 1 capital requirement to be deemed ``well capitalized.''

To contact the reporter on this story: Christine Harper in New York atcharper@bloomberg.net.

Paulson Debt Plan May Benefit Mostly Goldman, Morgan

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUj_9.k13q7s&refer=home
By Jody Shenn
Sept. 22 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.
``Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.
Many banks may not participate in the Troubled Asset Relief Program because they haven't had to write down as much assets under accounting rules, meaning decisions to sell into the program would cause them to lose capital, Rosenberg wrote. Investment banks operate ``under a mark-to-market accounting model while commercial banks hold assets at cost until realizing a loss (or until they reasonably expect one),'' he wrote.
Rosenberg assumed the government will use a reverse auction in which banks submit the lowest prices they are willing to sell certain types of assets for and then the government buys the cheapest ones, with the goal of ``protecting the taxpayers,'' the report said.
Treasury Secretary Henry Paulson's push for the program, now considered by lawmakers, is designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.
The intervention into markets would be the broadest since at least the Great Depression. House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, said today lawmakers and Paulson narrowed differences on the plan.
Japan's Failure
In the 1990s, a Japanese government effort to buy troubled assets from banks to free up lending failed because sellers weren't willing to accept the prices offered, said L. William Seidman, a former chairman of the Federal Deposit Insurance Corp. He said that wasn't a problem he had as chairman of the Resolution Trust Corp. in the U.S., which sold off failed lenders' assets after the savings-and-loan crisis of the 1980s.
``If you're talking about institutions that haven't failed, then you have the question of whether they want to sell at a low price, particularly if that price depletes their capital,'' Seidman said in a telephone interview today.
``In Japan, we did all kinds of things, trying to have a mediator who would set a price and other kinds of methods to get around that,'' he added. ``It never really got done, so it was not successful, but here we probably have a more urgent need for more institutions to do something.''
`Hasten the Pace'
While Goldman and Morgan Stanley, both based in New York, were yesterday granted permission to transform themselves into bank holding companies, the companies so far have operated mostly under investment-bank accounting rules, logging almost $21 billion of asset writedowns and credit losses. Paulson is a former chairman and chief executive officer of Goldman.
Charlotte, North Carolina-based Bank of America, which has reported $21 billion of losses, is seeking to buy New York-based Merrill Lynch & Co., which has had $52.2 billion in losses.
Even without sales by commercial banks and savings-and-loans under the program, the companies may be harmed as the disclosure of prices paid in the troubled-debt auctions force them to ``hasten the pace'' of their own losses, Rosenberg wrote in his report. Banks and insurers mark down certain securities and derivatives to market prices in their earnings reports, avoiding losses on others unless they deem the declines to not be temporary and provisioning against loans as they go bad.
Fair Value
Bank lobbying groups today asked Congress and the U.S. Securities and Exchange Commission to suspend a rule that forces companies to put a price on difficult-to-value assets such as subprime mortgages.
``We are suggesting that the SEC issue a temporary order to negate the negative impact'' of the so-called fair-value rule when the economy slumps, Scott Talbott, senior vice president of government affairs at the Washington-based Financial Services Roundtable, said in an e-mail.
Companies including American International Group Inc., the insurer that accepted $85 billion in a U.S. takeover, have said the rule by the Financial Accounting Standards Board requires them to record losses they don't expect to incur. The world's largest banks and brokers have reported more than $520 billion in asset writedowns and credit losses since last year.
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Japanese Girl Sensation: Virtual Boyfriends (Webkare)

by Serkan Toto on September 20, 2008

In Japan, girls are crazy over virtual boyfriends. Webkare (Web Boyfriend in Japanese), a mix between a social network and dating simulation site, is Nippon’s newest web sensation. Geared exclusively towards girls, the site attracted over 10,000 members just 5 days after its release on September 10, racking up 3.5 million page views in the same time frame.

The site is a huge hit over here. Girls sign up and become members of a social network but also users of a dating simulation in cartoon style. They have to try to hook up with one of four male Anime characters (who are the “stars” of the site) through “conversations” and must collaborate with other Webkare members in order to move on in the game. Eventually they conquer the heart of the chosen cartoon boy.

It’s pretty weird but clever. Dating simulations have been popular in Japan for quite a while now, but Webkare marks the first time the concept has been brought online and combined with social networking functionality.

Girls choose between one of four different male cartoon characters they want to hook up with upon registration. They can then “communicate” with their digital crush in cartoon-like sequences to try to win over his heart over the course of the game. It’s also possible to meet other boys later in the story, which uses a virtual high school as the main setting.

Interaction is quite limited, as users themselves can neither type text nor “speak” to the characters. Instead, Webkare will display a short cartoon clip if you click on the boy you like (some of the clips include voice samples such as “What’s up?”, “Do you always stay in the class room until dark?” “Leave me alone!” etc.), driving the love story forward step by step.

Important conversations or events can be stored in the album section of the site as “memories”.

On the surface, Webkare’s social network functions are kept to a minimum. There are profiles (including the “Propeta” feature that lets you decorate your profile with small branded icons, similar to the HotLists used in HotOrNot profiles), a direct messaging system, a discussion board and a Twitter-like microblogging function. But the social aspect is actually quite distinctive, as members need to befriend each other and collaborate. LinkThink, the company behind Webkare, is strangely secretive about the game mechanics, however, making it hard to figure out how to advance in the game. For example, it seems to be essential to “talk” to the boyfriends of other users and view their profiles and albums.

Currently usage is free, with display ads and affiliate links as main sources of revenue. Webkare’s future monetizing strategy could include turning the concept into a video game or novel, merchandising, product placement, selling virtual items, expanding the concept to cell phones, developing a version for male users or offering premium memberships.

Another obvious option is internationalization, but here the question is if such an idiosyncratic way of curing loneliness 2.0 could succeed in the US or Europe as well. Reportedly, 52% of members are Japanese females in their twenties, with thirty-somethings accounting for 18% of the user base.

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CrunchBase Information

Location:	Tokyo, Japan
Founded:	July 25, 2006

Web start-up LinkThink is best known in Japan as a provider of widgets.

The company is also active in the online advertising business, in system integration and the production of contents for the mobile and fixed Internet.

LinkThink employs… Learn More

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