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Transaction: Preparing Small Businesses for the Next Disaster

August 31, 2011 by Leave a Comment

The former home of Kraft Insurance Services in Joplin, Mo.Barbara TaylorThe former home of Kraft Insurance Services in Joplin, Mo.

Transaction

Putting a price on business.

The gods must be crazy, or at the very least they seem extremely perturbed this year. Each season of 2011 has been one for the record books as far as weather events. Here in the state of Arkansas we had record cold and snowfall this winter, followed by historic flooding and tornado damage in the spring. In states throughout the south central United States, the Mississippi river went on a flooding rampage the likes of which had not been seen since the 1930s. A tornado outbreak ripped across several states, with Alabama bearing the brunt. Texas and Oklahoma are still being oppressed by relentlessly hot temperatures, and now Irene has come barreling up the eastern seaboard. Dare I ask what’s next?

While I confess to knowing nothing about climate change, I do know that — for those of us who own small businesses — the beat must go on, if not during a disaster than as soon as possible thereafter. Yet few of us seem to have a plan in place for our businesses should disaster strike. Even as I write this blog post, I am aware that — other than storing all of my office files, data and e-mail in the cloud — there isn’t much to my own disaster preparedness beyond Google Apps and a flashlight.

I have little excuse after what happened just 45 minutes to the north of me in Joplin, Mo., just three months ago. On Sunday, May 22, Joplin was hit by an EF5 multiple-vortex tornado. It was the deadliest tornado to hit the United States in decades and could be one of the most expensive, with some estimating the cost to rebuild Joplin topping out at $3 billion.

The urge to drive up to Joplin within hours of the tornado was overwhelming for those of us in neighboring cities who wanted to help, but we were warned not to “self deploy” until formal relief efforts had been completed. It was about two weeks later that my husband and I made a trip north to check on a friend’s property. While we were there, we paid a visit to the Joplin Area Chamber of Commerce where we were introduced to Randy and Shelly Kraft.

The Krafts have been Joplin residents since 1986. They established Kraft Insurance Services — an independent brokerage serving 8,000 customers in 11 states — in 1989. Their building was located just four blocks east of St. John’s Regional Medical Center in the hardest-hit part of town. “I couldn’t get within about three miles of the building,” Randy recalled of those first hours after the tornado. The streets were unrecognizable. Miraculously, about 50 percent of the Kraft Insurance building was left standing. According to Shelly, their thoughts turned immediately to their customers. “We knew they would be calling like crazy on Monday morning,” she said.

Four of the Krafts’ 13 employees showed up for work the morning after the tornado; the rest were back within a week, with several able to work remotely from home. The business — its servers undamaged — ran off of generators and cellphones for the first few days. On the fourth day, the Krafts relocated their office and call center to a banquet room at a Holiday Inn.

“We didn’t physically have a building,” said Shelly, “but Kraft Insurance was still a functional business. Many of our insurance companies provided us with basic office supplies and necessities.” It was a Progressive sales rep who helped them relocate to the temporary Holiday Inn space. While the offers of support were overwhelming, Shelly remembers having difficulty accepting them. “People are offering because they want to help,” she said. Her advice to other business owners: “Let them!”

The Krafts’ customers also rallied support. A construction company put a tarp over the roof of the Kraft building and made minor repairs to help minimize water damage during the  storms that pummeled Joplin for days after the tornado. Another customer arranged for the Krafts to rent 3,200 square feet of office space until they finish repairs on their building, which they estimate will be completed within a year.

One of the challenges for Kraft Insurance was that — while 30 percent of Joplin was decimated — the rest of the city and Kraft’s out-of-state customers were not. “Those people were still buying cars and new homes. Many construction workers were coming into town needing to be bonded and insured. Regular business had to go on,” Shelly said. “We divided our staff: Some took new business while others took claims.”

I asked Shelly if the tornado had changed any of her advice about insurance. “We believe strongly in replacement cost policies, where the insurance company will pay you the replacement cost of your property instead of the actual cash value,” she said. “If one of our insureds owns a house with a market value of $50,000 and a replacement value of $120,000, we recommend that it is in their best interest to pay for the replacement cost policy.” This advice won the Krafts “many hugs” from their customers, many of whom lost everything on May 22.

Ironically, the Krafts had started working on a disaster plan before the tornado, but never completed it. Given the extent of what happened, Randy expressed doubts that the plan would have been adequate. Even their flashlights weren’t really prepared. “We had them,” Shelly said, “but none seemed to have very good batteries in them.”

What about you? Do you have a disaster plan in place for your business?

Correction: An earlier version of this post misspelled Shelly Kraft’s first name.

Article source: http://feeds.nytimes.com/click.phdo?i=0eba1155383f337f34c931a26457b3d0

Filed Under: Small Business Tagged With: , ,

Tech Support: Wicked Start: A Start-Up That Automates the Process of Starting Up

August 31, 2011 by Leave a Comment

Tech Support

What small-business owners need to know about technology.

Bryan Janczko, founder of Wicked Start.Andrea Morales/The New York TimesBryan Janczko, founder of Wicked Start.

Hari Kaur has been teaching yoga for 20 years as a private instructor and at other people’s studios, most recently in New York, but it was only late last year that she decided she wanted to start her own Jazz Yoga school — the world’s first, as far as she knew. What she didn’t know was much about how to start and run a business.

But one of her students happened to be an experienced entrepreneur who had recently started his fourth company, and he gave her some smart-sounding advice on funding, marketing and leasing a space. When she came up with more questions, he told her she ought to check out that latest business of his, which happened to be a free online service focused on … how to start a company.

Web-based tools are becoming nearly essential to many aspects of running a business, so why not bring them into the process of creating and executing a business plan? That’s the idea behind Wicked Start, the brain child of Bryan Janeczko, the yoga student. Mr. Janeczko had been a management consultant at PricewaterhouseCoopers, and then on his own, and later did a stint as a vice president at J.P. Morgan. But his real entrepreneurial awakening occurred, he said, when in 2003 he set out to found a company that delivered meals to dieters: “I thought, ‘I’m smart, I have an M.B.A., how hard could this be?’”

You know the answer to that one. “When you work for a company, you have certain well-defined responsibilities,” he said. “When you’re an entrepreneur, you do it all, and from the ground up. You need to deal with the legal work, building a Web site, setting customer service policy. People go into starting a company optimistically, and blindly.”

But against the odds, and not without struggle, Mr. Janeczko steered his Long Island City, N.Y., start-up, called Nu-Kitchen, to sales that doubled annually through 2008, when the company was snatched up by the diet industry giant NutriSystem for a reported initial payment of $4 million. After that he started a nonprofit organization called StartOut to support entrepreneurship within the gay, bisexual, lesbian and transgender community. He also found himself in demand on the speaker circuit and among would-be entrepreneurs as a source of advice — and noticed that he was cautioning people about the same basic mistakes over and over again. That’s what led him to introduce Wicked Start last year.

The heart of Wicked Start is a series of customizable templates for each of 10 steps in starting up a business, running from producing a business plan to raising money to building the company’s infrastructure to marketing, and more. The site automatically tailors the templates to any of several industries, such as brick-and-mortar retail, e-commerce, consulting or food services, covering about 70 percent of start-ups, according to Mr. Janeczko, and users can further customize as needed. Each template lays out action items, including pinning down your business idea and creating PowerPoint presentations to hit up friends and relatives for financing. It goes on to help with taking on partners, setting up a marketing plan and signing a lease. The items prompt you to set deadlines and to create e-mail reminders to nudge you to stay on track. In a sense, it’s a project management tool that’s been thoroughly adapted to the project of getting a company off the ground.

Mr. Janeczko takes pains to point out that he’s not trying to force entrepreneurs to stick to a rigid, one-size-fits-all script. “Only about a third of our users do all the steps in sequence,” he said. For each step, the site also offers advice in various forms, including videos of successful entrepreneurs and other experts talking about what works, as well as community forums and articles. Mr. Janeczko hopes the advice, combined with the template structure, will help company builders avoid making those mistakes he kept hearing about when he was giving out advice.

One common mistake is underestimating how much time and money it takes to get to the point where the company is taking in real money — first-time entrepreneurs are usually off by a factor of at least two, he said. Another is failing to focus the business idea. “People are way too broad about what problem they’re trying to solve or what market they want to address,” he said. “It’s much better to pick a narrow, well-defined problem and market, make it work, and then you can expand it later.” The site pounds away at these points, along with others, such as not wasting marketing funds on paid advertising when there’s so much free marketing to be had via social networks and word of mouth.

Ms. Kaur, the yoga teacher, said Wicked Start, which unveiled an expanded version earlier this month, had been an enormous boon. “I’m a creative person, my weakness is setting up the infrastructure of a business,” she said. “I didn’t know how to find the right computer tools, or how to be able to accept credit cards. I keep coming back to the site for extra help, step by step.” Ms. Kaur opened her studio, Hari NYC, a few months ago, and she says so far she’s stayed with the 60-day plan she set up on Wicked Start, and she’s doing well.

I’ll mention one other tool, though of a different sort, that may be helpful to getting a business going. That’s BizTree, a downloadable trove of document templates intended to shave time and expense off of just about every one of the nuts and bolts required to put a company together and keep it running. There’s no advice or structure to be gained from BizTree, which costs $249.95, but whatever specific task it is you want to do — hire an employee, take on a partner, sign a lease, put together a marketing plan — BizTree will hand you the sort of document you’ll need.

Saul Bienenfeld, who runs a single-lawyer practice with three employees in New York, said that even as a lawyer himself he saved a lot of time adapting BizTree contracts for his own business as well as on behalf of his clients. And he insisted BizTree had helped him head off potential employee hassles by providing him with hiring and firing forms, and an employee handbook that covers everything from sexual harassment to absenteeism to no-smoking policies.

A BizTree document even recently walked him through the process of changing his firm’s name. “I find it a lot easier to do things when I can start off with something on my computer screen, instead of working from scratch,” he said. But he adds that non-lawyers should get BizTree-based legal contracts looked over by a flesh-and-blood lawyer.

You can follow David H. Freedman on Twitter and on Facebook.

Article source: http://feeds.nytimes.com/click.phdo?i=a6603f41394a628ea7ff59b6106c233b

Filed Under: Small Business Tagged With: , ,

Expanded Euro Bailout Fund Clears Hurdle in Germany

August 31, 2011 by Leave a Comment

BERLIN — The German Cabinet approved new powers for the euro zone’s bailout fund on Wednesday, kicking off a month-long campaign to convince sceptics in Chancellor Angela Merkel’s conservative camp to back efforts to contain the bloc’s crisis.

Concerned that Germany is ceding too much power to Brussels, some members of her center-right coalition have threatened to vote against bolstering the fund — the European Financial Stability Facility — when the lower house of parliament meets on Sep. 29.

If enough conservatives rebel, and Mrs. Merkel is forced to rely on opposition parties to pass the legislation, she could face pressure to dissolve parliament and call early elections, although the chances of that seem slim.

“It is very important to get new powers for the E.F.S.F. passed swiftly, not just because it is expected to assume the bond-buying role of the” European Central Bank, “but simply because the commitment of resources sends a very strong signal of reform momentum in the euro area,” said Silvio Peruzzo, European economist at RBS in London.

“Our working assumption at the moment is that Germany is fully on board to give the E.F.S.F. new powers. But we are at a point where the political capital is being tested,” he said.

Euro zone leaders last month agreed to boost the effective size of the fund to €440 billion, or $635 billion, and give it extra powers, including a potential role in helping to recapitalize banks.

In a sign of how important the current debate in Germany is for investors, news of the Cabinet approval pushed the euro up against the dollar.

There are fears that if Berlin insists on its parliament having a greater say in the E.F.S.F., other countries will too, limiting the fund’s ability to act swiftly to save stricken states.

Faltering economic growth in the 17-nation euro zone risks prolonging the debt crisis, which began nearly two years ago and has since spread from peripheral states like Greece, Portugal and Ireland — all of which have received bailouts — to menace bigger economies like Spain and Italy.

The German Finance Minister Wolfgang Schäuble said an expanded E.F.S.F. that would have powers to intervene in bond markets and provide precautionary credit lines to troubled member states would help the bloc “prevent contagion in good time.”

Mrs. Merkel’s conservative coalition has 330 seats in the 620-seat Bundestag, the lower house of parliament. With nearly two dozen of her lawmakers reportedly considering voting against the stronger fund, conservative leaders have come up with a proposal to assuage fears that they will be bypassed on future aid decisions.

Under the plan, the Bundestag’s budget committee would be informed of minor decisions but there would be a fuller parliamentary consultation in other cases. Norbert Barthle, chief budget expert for the conservative bloc, said that should mollify dissenting legislators without introducing lengthy new legislative hurdles.

The lawmakers’ insistence on having more influence over the deployment of the rescue fund is expected to be upheld by Germany’s top court next Wednesday.

In what is expected to be a landmark ruling, many legal experts expect the Constitutional Court to say that the government broke no laws by contributing to euro-zone bailout funds, but that Parliament should be consulted more.

As Europe’s biggest economy, Germany foots more than a quarter of the bill for euro zone bailouts.

“Governments in the euro zone can no longer assume they can take decisions that affect their citizens very closely without consulting their parliaments,” said political scientist Oskar Niedermayer at Berlin’s Free University. “It has become clear that this no longer works in Germany, and I think parliaments elsewhere in the euro zone will be even more difficult.”

The Bundestag vote on Sep. 29 will be followed by a vote in the upper house, the Bundesrat, the next day, which would allow ratification of the fund by the end of the month as Mrs. Merkel and the French President Nicolas Sarkozy have promised.

This month Germany also starts discussing the permanent bailout fund that is to become operational in mid-2013, the European Stability Mechanism, which has to be ratified by year-end.

Frank Schäffler, a lawmaker with the Free Democrats, junior partners in Mrs. Merkel’s coalition and a bailout sceptic, said it was possible she would manage to push through the E.F.S.F., “but I don’t believe the Bundestag will give her a majority on the E.S.M.”

Article source: http://www.nytimes.com/2011/09/01/business/global/expanded-euro-bailout-fund-clears-hurdle-in-germany.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Police Raid BP Offices in Moscow

August 31, 2011 by Leave a Comment

The timing of the raid, however, highlighted this peculiar type of Russian risk for another company — ExxonMobil, which just a day earlier agreed to take over the very Arctic exploration deal that fell through for BP.

BP is still involved in a dispute with its Russian partners over that oil-exploration deal; the police search was related to a lawsuit pending in a Siberian court.

Russia is as important for BP’s oil production as the United States, so even though the company has had such problems here for years, its share price often nudges up or down in response to police raids or the arrests of employees.

The police raids on Moscow’s glassy high-rises where foreign banks and oil companies have offices unnerve employees and disrupt business. They are called “masky shows” for the balaclavas often worn by the black-clad police.

In Wednesday’s raid on BP’s offices on the 17th and 18th floors of the Lotte Plaza, a glass-and-steel high rise on Moscow’s Garden Ring, police wore commando-style uniforms with yellow shoulder patches saying “Special Forces,” and carried assault rifles, but did not wear masks, according to BP employees.

They were escorting two investigators from the Russian federal bailiff service, who were not armed. The police ushered employees out, and began rifling papers.

“There was no great panic,” one BP employee said. “I was able to come up and get my keys” even after the armed men arrived, suggesting a softer version of the search.

The employee, who did not want to be quoted discussing the events, described the armed police as polite, and not overtly intimidating. “They were just a group of comrades with the badges of special forces, in black outfits, with assault rifles, nothing extraordinary.”

An arbitration court in the Siberian city of Tyumen, a type of Russian civil court, authorized the search, according to both BP and a group of minority shareholders in BP’s joint venture here who filed a lawsuit this year against BP.

The case spun out of the objections that BP’s private partners in the TNK-BP joint venture raised to BP’s agreement to form a separate partnership with the Russian state oil company, Rosneft, to explore for oil in the Arctic.

BP executives say they assumed that since the Russian government had endorsed the deal, and the state company signed it, it enjoyed Kremlin support, but that was not the case.

The partners, a group of Russian billionaires, successfully sued in the Stockholm Arbitration court to block the deal for violating an exclusivity clause in the TNK-BP shareholder agreement.

Separately, a group describing itself as representing minority shareholders in a subsidiary of TNK-BP that is publicly traded sued BP in the Siberian court for damages. The lawsuit was based on the allegation that BP executives serving on the board of directors of the TNK-BP subsidiary violated their fiduciary obligation.

The case says they voted in BP’s interest, rather than the common interest of all TNK-BP shareholders, in approving the Arctic deal.

A similar lawsuit, also filed in a remote Siberian court, in Omsk, crippled the Norwegian telecommunications company Telenor’s business in Russia for years, ending in a settlement last year.

Then, Telenor was in a dispute with Alfa Group, a Russian financial and industrial conglomerate that is also a partner in TNK-BP. Alfa group has maintained it has no ties to the minority shareholders.

BP had appealed a subpoena to hand over documents from the Tyumen court in the TNK-BP case in July, according to the company spokesman, Vladimir Buyanov.

While that was pending, the minority shareholders asked the court to authorize the search of BP’s Moscow office, which happened on Wednesday, Dmitri Chepurenko, a partner in the Liniya Prava legal firm, said in a statement sent to journalists.

Whatever the legal issues, foreign businessmen in Moscow have for years implored the government to refrain from conducting such jarring raids in white-collar cases.

BP has been subjected to several.

Sometimes, police wielding guns force stock analysts and economists onto the floors of their offices — puncturing any sense they may have had that the air conditioned, well-appointed offices in downtown Moscow offered insulation from heavy-handed Russian police tactics.

In February, masked, armed men raided Deutsche Bank’s main office in Moscow, looking for documents related to a commercial mortgage.

In November, police armed with automatic weapons raided a bank belonging to the billionaire Aleksander Y. Lebedev, of the national airline Aeroflot. Mr. Lebedev said he was sitting in his office when men in commando outfits wearing masks burst in, looking for documents.

Article source: http://www.nytimes.com/2011/09/01/business/global/bp-russia.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

U.S. Moves to Block Merger Between AT&T and T-Mobile

August 31, 2011 by Leave a Comment

The lawsuit sets up the most substantial antitrust battle since the election of President Obama, who campaigned with promises to revitalize the Justice Department’s policing of mergers and their effects on competition, which he said declined significantly under the Bush administration.

ATT said it would fight the lawsuit. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” the company said in a statement. “The D.O.J. has the burden of proving alleged anti-competitive effects and we intend to vigorously contest this matter in court.”

ATT said it had no warning that the government was going to file to block the merger, because it has been actively involved in discussions with both the Justice Department and the Federal Communications Commission since the proposal was announced in March. ATT has indicated that it would consider some divestitures or other business actions to allow the deal to go forward.

But Justice Department officials said that those discussions led it to believe that it would difficult to arrange conditions under which the merger could proceed. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division.

The Justice Department has broad authority to influence proposed deals. On rare occasions, the agency takes the aggressive step of suing to block a deal altogether, as it is doing with ATT and did earlier this year with HR Block’s bid for the owner of TaxAct tax-preparation software.

Sometimes just the threat of legal action is enough to stymie a deal, as in May when Nasdaq dropped its rival bid for the New York Stock Exchange’s parent company. In other cases, the Justice Department will remain silent, blessing a deal by default.

ATT’s promise to fight the suit could mean a potentially lengthy fight.

Consumer advocacy groups cheered the announcement. “This announcement is something for consumers to celebrate,” said Parul P. Desai, policy counsel for Consumers Union. “We have consistently warned that eliminating T-Mobile as a low-cost option will raise prices, lower choices and turn the cellular market into a duopoly controlled by ATT and Verizon.”

Harold Feld, legal director of Public Knowledge, a nonprofit group, said that “fighting this job-killing merger is the best Labor Day present anyone can give the American people.” But labor groups had generally supported the merger, in part because a substantial number of ATT employees are members of the Communication Workers of America, while T-Mobile is a largely non-union company.

Deputy Attorney General James M. Cole said the department decided that among those adversely affected would be wireless customers in rural areas and those with lower incomes. He said he also believed that an independent T-Mobile would be more likely to expand its business and add jobs, while mergers often result in the elimination of jobs.

The future of an independent T-Mobile is more of a question today, however, than before the merger with ATT was announced. Its parent company, Deutsche Telekom, has said it does not want to continue to invest in the American wireless market, preferring to focus on the growth of its telecommunications business in Europe.

Before ATT announced its intention to buy T-Mobile, there was consistent speculation in the wireless industry that a merger between T-Mobile and Sprint Nextel, the third-largest provider, was in the works. But such a deal looks unlikely in light of the arguments mustered by the Justice Department against the ATT deal.

Article source: http://www.nytimes.com/2011/09/01/technology/us-moves-to-block-merger-between-att-and-t-mobile.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Economix Blog: Casey B. Mulligan: Preparing for Disaster

August 31, 2011 by Leave a Comment

DESCRIPTION

Casey B. Mulligan is an economics professor at the University of Chicago.

Much of the economics of environmental disasters is about anticipating and planning.

Today’s Economist

Perspectives from expert contributors.

Hurricane Irene traveled the East Coast last weekend and was expected to be one of the rare hurricanes to hit New York (by the time it reached there, it had been downgraded to a tropical storm). Although many thousands of people in the region may be without electricity for days to come, New Yorkers are glad that Irene did little damage as hurricanes go.

The storm began to receive media attention the weekend before it arrived, and people in the New York area used the time to prepare themselves. Forecasters have been criticized for overestimating the amount of wind that New York would experience, but the winds and tides were plenty strong. Preparation was an important reason that damage was limited.

For example, the eye of the storm passed right over Kennedy International and LaGuardia Airports, but planes did not crash because the airports were shut during the storm. Few lives and little cargo was lost from ships in the area because the ports were closed, and vessels moved out of the area.

Hundreds of thousands of people were left without power, and many homes were flooded. But, clearly, the damage would have been much worse if Hurricane Irene had hit with no warning.

I have no expertise in climate, weather, physics or aerodynamics, but one of the lessons of economics that environmental changes are less harmful when they can be anticipated. With only a few days of preparation, as with Hurricane Irene, people and mobile capital can be moved out of harm’s way. Protective barriers can be constructed for the immobile capital like homes.

New York was not given a definite warning of Irene a year ahead, let alone a decade ahead. But if it had been warned years ahead, the economy could have adjusted even more by making plans to locate activity in more protected places. Or perhaps even to invent goods and production processes that are more hurricane resistant.

The opportunities for preparation are one reason why economists expect the damage from global warming to be different, and perhaps less, than from natural disasters that hit by surprise.

Global warming is expected to raise temperatures and sea levels over a period of decades – perhaps centuries. Even if scientists are completely unable to retard or reverse the environmental consequences of global warming, thanks to decades of warning the economy can greatly adjust to minimize the economic costs of those environmental consequences.

That’s the thesis of a recent book, “Climatopolis: How Our Cities Will Thrive in the Hotter Future,” by Matthew Kahn of the University of California, Los Angeles (disclosure: Professor Kahn is a friend and was my classmate at the University of Chicago). Given advance warning, people will protect themselves and innovate in order to make sales in future market when the symptoms of global warming are more threatening.

Article source: http://feeds.nytimes.com/click.phdo?i=d3d1e8e6358d0d38f90512810753300b

Filed Under: Business News Tagged With: , ,

DealBook: How to Deflate a Gold Bubble (That Might Not Even Exist)

August 31, 2011 by Leave a Comment

Harry Campbell

Gold is caught in a frenzy.

The price of gold reached a record high of $1,917.90 an ounce last week, not adjusted for inflation, and then promptly plummeted by about $120 an ounce. The volatile trading is again spurring claims that gold is in a bubble, one that will pop badly.

As with past booms in housing prices and Internet stocks, the four-year surge in gold prices raises the same fundamental questions for market regulators. How should they react? Should they react at all? How do they even know if a bubble exists?

It is clear that speculation has been driving gold’s rise. People are buying gold as either a hedge against inflation or economic calamity or solely because they think the price will rise. As evidence of this speculation, the World Gold Council reports that demand for gold bullion bars more than doubled from 2009, to about 850 metric tons a year. This is largely gold that is bought and sits there as people wait for price increases. Indeed, demand for gold in industry and for jewelry has actually declined by 18 percent from 2004, to about 2,500 metric tons a year, according to the World Gold Council.

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This speculation is aided by the financial revolution. Previously, gold could be bought by retail investors only through dealers and street shops. Now anyone can go on the Internet, click and buy gold in the market through exchange traded funds. These funds will buy gold on the investor’s behalf, and now hold about 2,250 metric tons of gold — or nearly a year’s worth of output.

Speculation alone doesn’t necessarily mean that gold is in a bubble. Gold is historically viewed as a protection against inflation and tumultuous economic times. It is a way to diversify a portfolio and hedge these risks. The price rise can be explained by people’s rational betting that these phenomena will occur. This is particularly true in light of the heightened risks to the economy because of events in Europe and the still-lingering effects from the financial crisis in the United States.

But like paper money, gold is worth only what people believe it is worth, and because of this, it is sometimes referred to as the barbarous relic. You can’t eat gold. Its industrial uses are limited. If someone else doesn’t assign the same value to gold that you do, you are out of luck. For those who predict it will be valuable if society completely collapses, guns and canned goods might come in handier.

Gold’s relative uselessness has helped spur talk of a bubble. The problem for regulators is whether this speculation is natural, prudent hedging or people irrationally piling ever more into a bubbly asset.

After all, Alan Greenspan, the former Federal Reserve chairman, speculated that the stock market might be “irrationally exuberant” in 1996, well before the actual bubble took hold. As with the Internet bubble, we will know if a bubble truly existed only if and when gold falls.

In his book “Irrational Exuberance,” Robert J. Shiller of Yale University tried to set forth a test for spotting bubbles. Bubbles are created when people buy in to the next great thing. They accept that this is a game-changing asset — like housing or the Internet — that cannot fail. As more people buy the asset, the speculation and frenzy increase.

According to Professor Shiller, a crucial driver of a bubble in today’s modern age is the Internet and media.

If you watch cable television, it would certainly appear that gold is in a bubble. Commercials abound for buying gold. Commentators on CNBC talk about gold hitting $2,400 an ounce, which would be a genuine record (the previous high of $850 in 1980 would be about $2,300 today, adjusted for inflation). In fairness, other CNBC commentators have said that this is foolish and that gold prices are too high. Still, the marketing of gold to the masses is an ominous sign.

Even after the downturn in prices last week, it is not clear if gold has hit its peak. Is gold still being driven by fundamentals or is it a speculators’ delight?

Because of this uncertainty, regulators have acted as hesitantly as they did in the case of the Internet and housing bubbles. The Chicago Mercantile Exchange recently raised margin requirements for gold, the amount of money you can borrow to buy gold. The Singapore exchange also raised margin requirements last week. Other exchanges in other countries have not acted similarly, leading to differences that will drive gold trading to those markets.

The Commodity Futures Trading Commission, the primary regulator of the gold market in the United States, does not appear to want to act. The agency is following form, as it also refused to act forcefully when oil jumped to more than $145 a barrel in 2008. It seems hesitant to quash speculation. The commodities regulator, though, could force American exchanges to further raise margin requirements, reducing leverage and the ability of investors to buy more gold. The agency would also have to act to limit the gold acquired individually and by the E.T.F.’s. All of these measures would have to be coordinated and put into effect on a global basis.

Those would also be very aggressive acts to attack a problem that some say doesn’t even exist. This analysis could be applied to other commodities that have had huge run-ups in past years, including oil, food and other metals like silver.

In other words, not only is it hard to spot a bubble, but the measures to fight it, like restrictions on leverage and holdings, are hard and controversial to put into effect. Limiting the type of media barrages we see is also impossible in a free society.

Yet if regulators are going to stop the next bubble, they will need to act aggressively. Of course, they shouldn’t act in every circumstance, but when we see volatility and speculation as is the case of gold, acting to curb these forces through limiting leverage in cooperation with international regulators would be a prudent course. This would ensure that if a crash does come, it does not have aftereffects on banks and other institutions. Even if the Commodity Futures Trading Commission is hesitant to take such steps, it could, as an initial foray, take to the media to try to “talk down” the speculation.

Otherwise, we’re left hoping, without much basis, that people have learned that this time will not be different, something not much in evidence in the case of gold.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

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DealBook: Cantor Makes Another Big Bet in Vegas

August 31, 2011 by Leave a Comment

Cantor Fitzgerald is on a winning streak in Las Vegas.

The Wall Street bond firm dove further into the gaming world on Wednesday, announcing an agreement to operate the race and sports book at the newly renovated Plaza Hotel and Casino in the city’s downtown area. The deal, slated to start in early 2012, is the latest score for Cantor’s gambling division.

“We are thrilled and honored that the Plaza has chosen us as its long-term partner,” Lee M. Amaitis, a former bond trader who now runs the firm’s operations in Las Vegas, said in a statement.

Back home on Wall Street, Cantor is not known for its risk taking. It is a major broker of United States government securities, typically considered one of the safest bets for investors.

But Cantor Gaming, a privately held division of the Wall Street firm, is thriving on a different sort of betting. It has exclusive rights to operate the race and sports book at several posh resorts near or on the Vegas strip, including the Vegas Hard Rock Hotel and Casino and the Cosmopolitan of Las Vegas. In June, the firm widened its relationship with the Venetian and the Palazzo, picking up their race and sports books after already providing the casinos with mobile gaming units.

In the statement on Wednesday, Cantor highlighted its plan to offer mobile gaming to the Plaza Hotel. Tony Santo, who runs a firm that is the licensee of Play LV, the operator of the Plaza Hotel and Casino, called the deal a “truly exciting milestone.”

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Square Feet: Along Harlem’s 125th Street, Redevelopment Projects Advance

August 31, 2011 by Leave a Comment

Since then, the Empire State Development Corporation, which owns the land, has been trying to redevelop the site. In 2005, it began a process to turn the Victoria into a mixed-use hotel, condominium and arts complex, and in 2007, after several fits and starts, it chose Danforth Development Partners to spearhead the project. But the collapse of the real estate market put those plans on a shelf, and the site has remained undeveloped.

In March, Danforth found a new equity partner, Exact Capital, and it now says the $100 million project is back on track and will break ground in the second half of next year. While not completed, the current design, by Aufgang Subotovsky Architecture and Planning, calls for two towers to rise above the theater: a 140-unit rental building and a separate 175-room hotel. The base will consist of the historic building, built in 1917 to a design by Thomas W. Lamb, and will become the new home of the Classical Theater of Harlem, Jazzmobile, the Harlem Arts Alliance and the Apollo Theater Foundation. The developers are planning to present the final design to the Harlem Community Development Corporation, a subsidiary of the Empire State Development Corporation, this fall.

The Victoria Theater is the latest in a string of redevelopment projects along 125th Street. In 2008, the city rezoned the street with a goal of replacing the many small-scale buildings along it with office towers, residential high-rises and cultural institutions. But the rezoning was approved just as the real estate market collapsed, and many of the developments did not get off the ground. Now, several are starting up again.

“When we received the designation for the project, that was the beginning of the slide in the real estate market,” said M. Steven C. Williams, the president and chief of Danforth, “but now, people have a clearer picture, hotel financing is coming back and the project is financeable.”

The theater’s facade will be preserved, as will several historic elements including gilded chandeliers, a fountain and a grand staircase. While the cultural center’s plans are not complete, it now calls for two performance spaces: a 199-seat theater and a 99-seat theater in which seats can be removed to create a multitude of configurations. In addition, the four-story theater building will house a scenery shop, costume shop, administrative offices, dressing rooms and a gallery.

“There will be no wasted space, since it is being custom-built, and we are taking advantage of economies of scale, such as shared restrooms, dressing rooms and a single receptionist,” said Jonathan Denham, a principal at the real estate company Denham Wolf, which is advising the cultural groups.

The residential component of the Victoria Theater project will have a full-service rental building that is expected to be 50 percent market-rate apartments, 30 percent reserved for middle-income tenants and 20 percent for low-income ones, said Craig Livingston, a managing partner at Exact Capital. The developers are negotiating with several companies to run the hotel and hope to strike a deal this fall.

“All the major hotel chains have expressed very serious interest in the project — even Starwood, which opened an Aloft hotel on Eighth Avenue but is considering another Starwood brand there,” said Curtis L. Archer, the president of the Harlem Community Development Corporation.

Other projects planned for 125th Street include Mart 125, across the street from the Victoria Theater. The mixed-use project will create up to 67,000 square feet of cultural and commercial space. It will also be home to the National Jazz Museum in Harlem, which produces jazz events and education series, and ImageNation Sol Cinema, which runs an independent film festival. In May 2010, the city, which owns the site, put out a request for proposals, and hopes to pick a developer “in the coming months,” said Seth W. Pinsky, the president of the New York City Economic Development Corporation.

While these projects have been in the works for years, “I believe Mart 125 will happen soon and same with the Victoria Theater,” said Paul Wolf, a principal at Denham Wolf, which also represents the National Jazz Museum at Mart 125. “Soon in Manhattan timing, so not 60 days, but not years either. I believe these projects are really going to happen now.”

In July, the city picked developers to re-imagine two other sites on 125th Street: the former Taystee Bakery complex and the Corn Exchange Building. The Taystee Bakery had been awarded to an affiliate of the Citarella food markets in 2001 but after it sat undeveloped for years, the New York State Supreme Court awarded it back to the city in 2009. The case is in litigation.

The current plan for the Taystee Bakery is reinvent it as Create @ Harlem Green, a $100 million development that will include 90,000 square feet of office space, 40,000 square feet of retail and a 10,000-square-foot community facility.

Several tenants are already lined up, including the Harlem Brewing Company and the Greenpoint Manufacturing and Design Center.

The $16 million Corn Exchange project will renovate the late 19th-century building at 125th Street and Park Avenue and add six stories to create 22,000 square feet for offices and 9,000 square feet for retail stores. The city hopes the project will break ground within a year, Mr. Pinsky said.

A fifth project is the East Harlem Media, Entertainment and Cultural Center. A $700 million endeavor, it is planned to eventually include a hotel, 250,000 square feet of office space and more than 800 units of housing, but the first phase, expected to be completed later this fall, is far more modest. It will establish 49 units of affordable housing and 5,600 square feet of retail space. The second phase, to be started sometime next year, will create just under 100 residential units and 50,000 square feet of retail space.

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Square Feet: Alexandria, Va., Seeks to Reinvent a Postindustrial Potomac

August 31, 2011 by Leave a Comment

But the area known as Old Town Alexandria became gentrified, as Federal-era town houses were renovated, and upscale restaurants and boutiques made the area a destination for tourists and others with money to spend. The Ford plant is long gone, replaced by 136 luxury town houses, and the old torpedo factory is now a venue for artists’ studios and events.

Still, remnants of the city’s industrial past continue to preoccupy politicians, planners and others seeking to rid the shoreline of unsightly old structures. To that end, the city has been devising a revitalization plan to replace the warehouses with hotels, condos, shops and, some citizens hope, more parks.

Now, a nonprofit group has proposed a $450 million effort to convert a coal-fired power plant to an environmentally friendly mixed-use development. The proposal received a push this week as the city and the plant’s operator, GenOn Energy of Houston, agreed to close it by Oct. 1, 2012, or “as soon as it is no longer needed” for regional demand, a statement the city released on Tuesday said.

The proposed development would have 89,600 square feet of office space and 114,500 square feet of stores and restaurants, 467 multifamily and 96 town house units, a 125-room hotel, recreational and open space, a center for alternative energy start-ups and a museum of the newest power technologies.

However, the group, called the American Clean Skies Foundation, does not own the property or the plant, and no developer has made an offer to acquire and redevelop them. Regardless, the foundation spent more than $500,000 on architects, environmental and real estate specialists, and even a public relations agency to produce and promote what it calls Potomac River Green. The proposal was unveiled Aug. 10 at the National Press Club in a news conference attended also by representatives from the Sierra Club and two members of the Alexandria City Council.

The American Clean Skies Foundation was founded by Aubrey K. McClendon, the chief executive of the Chesapeake Energy Corporation of Oklahoma City, one of the country’s largest producers of natural gas and a competitor to the coal power industry.

“We’ve looked at opportunities across the states for repurposing coal plants,” said Gregory C. Staple, the foundation’s chief executive. “We want to accelerate retirement of those inefficient and unscrubbed. Alexandria stands out.”

He said the foundation was “delighted” with Tuesday’s announcement.

The campaign to convert such sites to other uses got help from Mayor Michael R. Bloomberg on July 21. From a boat on the Potomac, with the GenOn generation station in the background, Mr. Bloomberg announced a $50 million grant from his charitable foundation to support Sierra Club efforts to close the country’s coal-fired power plants.

The City of Alexandria and local residents have fought for years to close the plant, which has been cited for violations of state and federal air pollution laws and operates at only 20 percent of capacity, firing up mainly at times of peak demand. Under a court settlement, GenOn put $34 million in escrow, to mitigate the ash and particulate matter the plant’s smokestacks still emit. Under the new agreement, GenOn would release the $32 million remaining in escrow.

The plant was briefly closed in 2005, but then Washington and the Department of Energy said it was needed to meet demand. In July, Washington asked the regional transmission organization to reassess the need for the plant in light of concerns about pollution.

With tough new rules expected soon from the Environmental Protection Agency, Clean Skies and its supporters said they believed the plant’s days were numbered. They noted that GenOn, which is publicly traded, had called it an “impaired asset” in its recent filings with the Securities and Exchange Commission. GenOn’s second-quarter statement, issued on Aug. 11, said it expected some older plants to be retired “as a result of proposed regulatory actions.”

It did not name the Potomac River plant, which occupies 25 acres near Ronald Reagan National Airport, and, initially, a spokeswoman for GenOn sought to quell expectations that the company was ready to close it.

“Impairment is a technical accounting term,” Misty Allen, a GenOn spokeswoman, said before the agreement to close the plant was announced. “Basically, at the time we valued the asset, the market value was less than the book value.”

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