A18 Economy & Business
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TUESDAY, MARCH 30, 2010
NASA to tackle Toyota mystery
Space-agency scientists will probe auto engine and electronic issues
by Peter Whoriskey
The federal probe into runaway
Toyotas has resulted in enough scientific mystery that investiga- tors have asked NASA scientists for help. The nation’s auto-safety reg-
REUTERS NG HAN GUAN/ASSOCIATED PRESS
Tom Connor, Australian consul general in Shanghai, briefs journalists after the Rio Tinto sentencing.
Rio Tinto executive Stern Hu’s 10-year term was called “very harsh.” He was among four charged with bribery and stealing business secrets.
Jail terms portend China’s tougher stance
by Elaine Kurtenbach
shanghai — Unexpectedly se-
vere jail sentences of seven to 14 years for four Rio Tinto employ- ees charged with taking bribes and stealing commercial secrets could augur tougher times for foreign companies and errant ex- ecutives in China’s unruly busi- ness world.
Seeking to protect its business ties from what it termed the men’s “deplorable behavior,” the mining giant fired all four. The court’s rulings against
Australian citizen Stern Hu, for- mer manager of Rio Tinto’s iron ore business in China, and three Chinese co-workers suggest au- thorities are taking a sterner stance toward foreign companies that violate the country’s often selectively enforced corruption code. The 10-year sentence for Hu
was “very harsh,” Australia’s For- eign Minister Stephen Smith said after the verdict was read Monday by the lead judge at the Shanghai People’s Intermediate Court. It was unclear whether Hu or his co-workers would ap- peal.
Rio Tinto, based in London
and Melbourne, is a key industry negotiator in price talks with China’s state-owned steel mills, and the arrests of its employees in August were thought to be linked to Beijing’s anger over high prices it paid for iron ore — a key commodity for China’s booming economy. That belief was shaken last week after the four pleaded guilty to taking bribes from steel mills trying to get preferential access to ore supplies. Australia said Hu’s sentence would not affect ties with China, but some experts said the secrecy of parts of the trial underlined
worries that companies have about doing business in a coun- try in which legal proceedings are often opaque. The verdict also comes as oth- er fault lines appear between Beijing and global corporations eager to tap a fast-growing mar- ket of more than 1 billion people. A recent survey showed that a growing number of foreign busi- nesses in China feel shut out un- der new government policies promoting homegrown technol- ogy. Internet search giant Goo- gle’s high-profile decision to move its Chinese site to Hong Kong after a spat over censorship and hacking added to the unease. China has chronic problems with corruption, so the Rio case “is not as simple as China send- ing a warning message to a par- ticular country or company,” said Jin Linbo, a senior research fel- low with the China Institute of International Studies. “It’s time
China should deal with this problem, or more serious cases will emerge,” Jin said. Beijing is constantly staging anti-corruption crackdowns as the ruling Communists strive to clean up an image tainted by graft scandals. But big foreign companies are rarely targeted, making it difficult to know how widespread graft is among inter- national businesses operating in China.
Rio Tinto, which is increasing- ly dependent on its business with China, issued a statement saying that an investigation it ordered found no wrongdoing by the company itself. “I am determined that the un- acceptable conduct of these four employees will not prevent Rio Tinto from continuing to build its important relationship with China,” said chief executive Tom Albanese.
—Associated Press
In low-interest-rate times, treasure your pension
point: low interest rates. The government has cut
W
short-term rates (which the Federal Reserve controls) to essentially zero, and it has spent more than $1.5 trillion buying assets and mortgages to hold down long-term rates (which are controlled by the financial markets). This is good for the U.S. economy as a whole, and especially good for borrowers. But these artificially low rates are terrible for savers, especially for retirees who want to convert their lifetime savings into lifetime income. Interest rates are so low, the recent rate uptick on longer-term Treasury securities notwithstanding, that it takes a surprisingly large amount of money to generate even a modest amount of lifetime income. Consider, if you will, the following numbers from New
DEALS
Allan Sloan
York Life, which I asked to price annuities for me because it’s an AAA-rated outfit that’s helped me crunch numbers over the years. How much would New York
Life pay a 65-year-old heterosexual couple that forked over $100,000 for a lifetime annuity that would last until both members had died? The answer: $527 a month. (Same-sex couples would get a different benefit: higher for two males, lower for two females. Hence my use of “heterosexual.”) If you’re a single 65-year-old male, your $100,000 would buy you $613 a
hat’s good for America isn’t necessarily good for all Americans. Case in
month for your lifetime. Back when long-term interest
rates were much higher, payments on annuities were higher, because sellers of annuities could have invested your money at rates way above what they can get today. Issuers of annuities work off a spread: The more they can earn on the money you give them, the more they can afford to pay you. The lower rates are, the less they pay. And rates now are pretty low by historical standards. I expect them to go higher — but then again, I’ve expected that to happen for years. Low interest rates have a secondary effect: They make pensions, whose benefits are typically fixed regardless of interest rates, enormously valuable. If our hypothetical couple had $500 of monthly pension income that would continue through the lifetime of the last member to die — what’s known as a joint-and-100- percent-survivor benefit — it would be the equivalent of almost $100,000 in savings, based on New York Life’s numbers. And $500 isn’t exactly caviar money. Sure, as tax mavens among you know, an annuity payment is somewhat more valuable than the same-size pension payment, because all pension income is subject to tax, while part of your annuity income is tax-free
because it’s a return of your investment. But comparing pension income with annuity costs gives you a reasonable idea of how big the “capital value” of your pension is. I’m not recommending that you buy a New York Life annuity, or any annuity at all, for that matter. I’m just showing you how much it costs in these low- interest times to buy a lifetime stream of income. I’m also trying to show how valuable lifetime pension benefits — and by extension, Social Security benefits — are. Let me offer up one more
example. Let’s say that you’re part of a 65-year-old heterosexual couple that has $30,000 a year — $2,500 a month — in joint-and-100- percent-survivor pension income. What’s that worth? Well over $400,000, based on a quote from our friends at New York Life, who were offering a $2,651 lifetime monthly annuity for $500,000. (It would be $3,128 for a 65-year-old single male.) So cherish your pensions, if
you’re fortunate enough to have them. And remember that despite all the talk about how wonderful today’s low interest rates are, there are lots of people for whom low rates are a curse, not a blessing.
Allan Sloan is Fortune magazine’s senior editor at large.
ulators have tapped nine experts from the space agency to answer questions involving software, hardware and other electronics issues, the Department of Trans- portation is expected to announce Tuesday, according to sources briefed on the plan who asked not to be identified because it is not yet public. A separate panel from the Na- tional Academy of Sciences will be convened to work on a broad 15- month review of vehicle electron- ics and incidents of unintended acceleration across the industry. That probe will cover the poten- tial for problems in electronic controls, human error and me- chanical failure.
Despite four congressional hearings on the sometimes fatal crashes, experts continue to dis- agree whether defects in engine electronics have caused some of the incidents of runaway Toyotas. The increasing complexity of en- gines, which run on multiple mi- croprocessors and lots of software, has complicated the discussion. “This is exactly the right thing
to do,” Jeremy Anwyl, chief exec- utive of the automotive website Edmunds.com, said of the broad- er approach. Edmunds.com has announced a $1 million prize for anyone who can pinpoint the cause in the engine. “It’s a cross- industry problem, and cross-in- dustry investigation is what is needed.” The studies are to be peer-
reviewed and expected to cost about $3 million. The Department of Transporta- tion also is expected to announce that the agency’s inspector gener- al has been asked to review whether federal safety regulators
at the National Highway Traffic Safety Administration have the personnel to adequately handle the complex engineering ques- tions that arise in such investiga- tions. Toyota and its hired experts say
they have found no problems in the engine electronics. And at least some of the crashes have been attributed to floor mats that entrapped the accelerator. But some drivers, including one who testified before Congress, say that their cars zoomed out of con- trol, even in instances when the floor mat was not interfering. In February, lawmakers heard testimony from a retired Tennes- see social worker whose Toyota 2007 Lexus ES 350 sped up to 100 miles per hour during a terrifying, six-mile ride. The car continued to speed, even after the driver ap- plied the emergency brake and shifted into neutral and then re- verse.
“I prayed for God to help me,” Rhonda Smith testified tearfully. ”I called my husband on the Blue- tooth phone system. I knew he could not help me, but I wanted to hear his voice one more time.” Those incidents point to prob- lems in electronic throttles and accelerators, according to some experts. In some models, such as the Camry, the number of com- plaints of unintended accelera- tion appeared to jump after the cars came equipped with the new electronics, according to data pre- sented to Congress. “Eliminating mechanical and human failures leaves only elec- tronics as the cause,” according to a presentation last week in Wash- ington by British engineers. The group recommended that
NHTSA initiate standards for au- tomotive electronic systems and that investigators get access to the automaker’s
software source
codes, hardware design schemat- ics, and test specifications and re- sults. In a slide show, engineer Keith Armstrong said that “30 years of empirical evidence overwhelm- ingly points to [sudden acceler- ation] being caused by electronic- system faults that are undetect- able by inspection or testing.”
whoriskeyp@washpost.com
MARK WILSON/GETTY IMAGES
Eddie Smith, left, and Rhonda Smith of Sevierville, Tenn., testified during a Capitol Hill hearing last month about her terrifying ordeal.
SEC queries firms on use of repurchase agreements
by Zachary A. Goldfarb
The Securities and Exchange Commission is asking the largest Wall Street firms and U.S. insur-
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ance companies whether they are using the accounting tech- niques that Lehman Brothers adopted to hide $50 billion in lia- bilities in the months before its collapse. The SEC said Monday that it has sent letters to the chief finan- cial officers of nearly two dozen firms to ask detailed information about their use of transactions that temporarily transfer finan- cial assets out of the firms. Those transactions, frequently called “repurchase agreements,” could allow a firm to show in ac- counting disclosures that it has fewer liabilities than it in fact has. As a result, the firm could appear to be less leveraged and stronger financially. Lehman Brothers used such
transactions to make it seem like it had more capital in reserve be- fore it filed for bankruptcy in fall 2008, according to a report by the bankruptcy examiner, who called the transactions “decep- tive.” In its letter, the SEC said it is
reviewing annual reports for the financial firms and requested in- formation dating back three years. “We are looking at the Lehman activities very, very
carefully,”
SEC Chairman Mary Schapiro said on CNBC on Monday. She said the SEC would review “every major financial institution very thoroughly.”
goldfarbz@washpost.com
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