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Silla Brush and Robert Schmidt
Wednesday, 04 September 2013 09:34 AM
One by one, Gary Gensler's supporters deserted him. Now the chief U.S. regulator of derivatives was being summoned by Treasury Secretary Jacob J. Lew to explain why he refused to compromise.
Banks and lawmakers, as well as financial regulators from around the world, had besieged Lew with complaints about Gensler's campaign to impose U.S. rules overseas.
The July 3 meeting in Lew's conference room with a view of the White House grew tense, according to three people briefed on it. Gensler argued his plan was vital if the U.S. hoped to seize meaningful authority over financial instruments that helped push the global economy to the brink in 2008, taking down American International Group Inc. and Lehman Brothers Holdings Inc. and igniting the worst recession since the 1930s.
Lew insisted that Gensler coordinate better with the Securities and Exchange Commission, whose new chairman, Mary Jo White, was also present. Gensler, who was deep into negotiations with his European counterparts, was surprised by Lew's demand. He'd been hearing the same request from lobbyists seeking to slow the process, and he told the Treasury chief it felt like his adversary bankers were in the room, the people said.
Gensler subsequently apologized to Lew for the outburst. He also softened his demands, cutting a deal with the European Union a week later. Gensler, chairman of a historically obscure agency called the Commodity Futures Trading Commission, had again pushed an idea to the brink until forced to settle.
Shrinking Purview
The fate of one of Gensler's central goals shows why the U.S. attempt to rein in the world's most secretive and profitable financial products falls short of the vision he promoted four years ago. While he won regulators the power to reach deep into a $633 trillion market, Wall Street preserved its dominance in derivatives trading with one of the largest sustained lobbying attacks on a single Washington agency.
In the end, the full force of the rules that the CFTC is writing under the authority of the 2010 Dodd-Frank financial regulatory law will apply to only a small share of the global market -- possibly less than 20 percent, according to data compiled by Bloomberg.
Whole segments of the business have been carved out of the rules. Derivatives based on foreign-exchange rates are largely exempt. Some firms are modifying their products to escape new oversight. And after Gensler's compromise with Europe, American banks will be able to sell derivatives overseas without direct U.S. scrutiny.
AIG Bailout
Derivatives were famously labeled "financial weapons of mass destruction" by investor Warren Buffett before they became accelerants in the 2008 meltdown and led to the $182 billion U.S bailout of AIG. The insurer couldn't cover credit-default swaps it sold to banks when the global squeeze began. The derivative rules now taking shape are a core element of Dodd-Frank, the government's biggest foray into regulating the financial industry since the SEC was created during the Great Depression.
The stakes are high, both for big banks that have earned more than $50 billion a year dealing in derivatives and for the larger economy. While they are rarely traded by individuals, many businesses and institutions use derivatives in investment strategies, which affect heating-oil prices, college savings funds and highway projects. Dairy farmers buy them to protect against sudden price increases in corn and soybean meal for their cows, helping to keep milk prices stable for consumers.
The CFTC has produced about 60 rules for derivatives. This story reviews how the banking industry and its allies forced Gensler to retreat on the three most consequential ones for Wall Street. It is based on agency, court and congressional records; private notes, e-mails and documents; and interviews with dozens of executives, lobbyists and U.S. officials, some of who spoke on condition of anonymity to describe private meetings.
Lobbying Blitz
When the standing of finance lobbyists in Washington began to rebound along with the economy their industry sent into recession, they sought to influence the language in the CFTC's intricate rulebook. They flooded the agency with visits, unleashed thousands of comment letters, enlisted sympathetic lawmakers and stoked differences between the CFTC and SEC.
Under the three-year assault, the CFTC created winners and losers with keystrokes. Changing a single number in one rule undermined potential competition to banks. Another tweak allows firms including Koch Industries Inc. and ConocoPhillips to trade billions of dollars in swaps and avoid the most stringent rules.
"The banks are going to be fine," said Sunil Hirani, chief executive officer of trueEX Group LLC, who helped pioneer electronic trading of derivatives. "They are going to make a ton of money."
Established Players
Jill E. Sommers, a Republican CFTC commissioner who stepped down in July, said the outcome leaves the big players in charge.
"Looking back, of course with 20-20 hindsight, I wish we would have done more to encourage competition," she said. "The only people that can afford to stay in the business are the people who have already long established their footprint in the market."
Pride of authorship helps explain why Gensler fought so hard. It's been a closely held secret that he was the invisible hand behind Dodd-Frank's derivatives section. His biggest coup was to slip carefully crafted language into the law that the banks didn't initially realize could give the CFTC authority over their foreign branches.
Gensler turned his agency upside down trying to preserve the intent of his own text. His demanding style got results, while also driving aides to a point of exhaustion and sending some running for the exits. He alienated other commissioners and angered what he calls the G-16 — the 16 big banks that, according to a 2010 Citigroup Inc. report cited by Deloitte LLP, earn about $55 billion a year from derivatives.
Burned Bridges
In the end, Gensler also sacrificed his ambition, creating so many political enemies in Congress and the industry that his chances for a second term as chairman are dim.
"He burned a lot of bridges getting it all done, within the commission and internationally," said David Hirschmann, president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.
Gensler, 55, is hustling to finish the rules this year before his tenure at the CFTC ends Dec. 31. He says any shortcomings pale next to Dodd-Frank's core accomplishment: Many derivative trades once handled privately are being forced into the open. The market will be cheaper for buyers and safer for the economy because participants will report transactions and clear them through a third party, putting up collateral.
Even that success may have unintended consequences. Some finance scholars, Wall Street banks and Gensler himself have warned that concentrating trades at a few big clearinghouses that settle trillions of dollars in deals creates a new risk --a potential too-big-to-fail powder keg when the next crisis hits.
Thousand Visits
The lobbying blitz pitted Gensler against banks, including the one where he started his career as a young star — Goldman Sachs Group Inc., which made more than 150 visits and calls to the agency from April 2010 through July 2013, an analysis of CFTC records shows.
Representatives of Gensler's G-16 opponents together made more than 1,000 contacts with the agency, the records show. They included lobbyists, lawyers and bank presidents. Alone or in groups, they attended more than a third of the 2,100 sessions that the CFTC's staff reported holding with outsiders.
All told, more than 3,500 people joined meetings at the agency's red-brick headquarters just outside Washington's K Street lobbying corridor.
Diverse Lineup
The lineup shows how derivatives have penetrated economic life beyond Wall Street. Royal Dutch Shell Plc and Caterpillar Inc. sent emissaries. The American Bankers Association came calling, as did the American Bakers Association, Chicago Mayor Rahm Emanuel, the head of Carolina Cotton Growers Cooperative Inc., the director of fuel for AirTran Holdings Inc. and the treasurer of Walt Disney Co.
(Among firms lobbying was Bloomberg LP, parent of Bloomberg News, which started an electronic derivatives-trading platform that competes with banks. The firm also filed an unsuccessful federal lawsuit against the CFTC involving its trading rules.)
The banking industry was the most persistent and well- financed of the visitors. In the first year after Dodd-Frank was enacted, Wall Street's biggest lobbying group — the Securities Industry and Financial Markets Association, known as Sifma — paid more than $3 million to law firms working on regulations, public filings show. Individual banks spent millions more.
Sifma President Kenneth Bentsen said the industry's dealings with Gensler aren't about "a win or lose." Banks that bear the burden of new rules have a responsibility to make sure lawmakers and regulators understand their perspective, he said.
"None of these things are as simple or as crystal clear as they were sold to be," said Bentsen. "Gary is a very smart individual. He obviously was in the industry. He has been in government. He is very certain of his view of things and is very determined. That's what guides him. But there is more than one view."
Seminal Meeting
Gensler's vision took shape on a January day in 2009. He sat in a glass-walled conference room across from two other people President-elect Barack Obama picked to rebuild the discredited U.S. oversight system for Wall Street: Timothy F. Geithner, who would be taking over the Treasury, and Mary Schapiro, nominated for chairman of the SEC.
Just as the 2001 terrorist attacks spawned a vast new national-security complex, the credit crisis was fueling calls for a regulatory wall against future financial disasters. All three agreed the U.S. had to wrest control from firms including Goldman Sachs, the biggest securities firm that was transformed into a bank, and JPMorgan Chase & Co., the biggest U.S. bank by assets, both of which made billions selling derivatives behind closed doors before taking taxpayer bailouts in 2008.
'No Books'
Gensler wanted trades to be public, buyers forced to post collateral and new businesses set up to compete with banks.
"We weren't staffed," Gensler said, describing the meeting in an interview. "There were no briefing books." It was a "vision that kind of we cobbled together."
Unlike regulators who have to learn the language of Wall Street, Gensler was a native speaker. With an MBA from the University of Pennsylvania's Wharton School, he became one of the youngest partners in Goldman Sachs history. He quit at 39, with investments he recently reported to be worth more than $15 million, and joined Treasury in 1997 as an assistant secretary.
Gensler is more self-assured than the typical finance nerd. He's fond of kicking off his shoes in the office. Unwinding after an industry conference in Florida last March, he pulled a female attendee onto the dance floor and gyrated expertly to pop rock tracks. A video clip went viral among Washington insiders, including surprised CFTC staff members.
Switching Sides
Gensler also surprised Wall Street with his two-step on derivatives. At Treasury, he advocated for their deregulation. He said he assumed that since banks were heavily regulated as institutions it would be redundant to make rules for each of their activities. "That was a bad assumption," he said.
Derivatives and the debate over their effects on society are at least as old as capitalism. Some scholars trace them to about 580 B.C., noting that Greek philosopher Thales the Milesian was said to have gotten rich buying rights to purchase olive presses after discerning a big harvest was on the way.
A swap, a common form of derivative, is at its simplest a contract between two parties who agree to exchange money or goods depending on what happens to an asset. Swaps are often used to hedge risk. An investor in a company's bonds might buy a credit-default swap, which provides a kind of insurance against the chance the firm can't repay its debt.
By the late 1990s, the U.S. swaps market had grown beyond basic hedging into a casino of increasingly ingenious and interconnected products.
When Gensler met with Geithner and Schapiro at the Obama transition offices, set up in a glass-and-concrete office building between the U.S. Capitol and the White House, the government was well into the AIG bailout. Gensler wanted the new regulatory machine to reach beyond the credit-default swaps sold by AIG into all derivatives that aren't traded on exchanges, the kind known as over-the-counter, or OTC, swaps.
"This would be the entire product suite," he recalled saying.
To Geithner, Gensler's views made sense. The Treasury chief had examined the derivatives market in 2005 and 2006 while he was head of the Federal Reserve Bank of New York. He saw risk- management practices that were stuck in the dark ages — trades confirmed with paper, pencils and faxes — and had virtually no oversight, according to a person familiar with his thinking.
Industry Roiled
Within months of the downtown Washington meeting, the Obama administration issued a proposal for "comprehensive regulation" of derivatives. News of that plan roiled the banking industry, which had long argued that swaps increase the flow of credit and reduce risk by spreading it around.
With few exceptions, Washington had sided with the banks over the years. "Regulation that serves no useful purpose hinders the efficiency of markets to enlarge standards of living," then-Federal Reserve Chairman Alan Greenspan told Congress in 1998, explaining why swap rules weren't necessary.
When regulation talk resurfaced, banks went looking for help again.
There is a "reasonably high risk that the OTC derivatives market could be destroyed," Blythe Masters, then chairman of Sifma, said at a private April 2, 2009, meeting where Bank of England Deputy Governor Paul Tucker was also in attendance.
Challenging Government
Masters had helped JPMorgan create the credit derivatives market in the 1990s. She asked Tucker how banks could counter the "increasingly prevailing view within Washington DC and Main Street" that swaps threaten the financial system, according to minutes given to Sifma's board members. Tucker suggested the industry "challenge the notion that government knows best and should engage the academic community," the minutes show.
Masters now oversees JPMorgan's commodities unit, which agreed to pay $410 million in July to settle claims it manipulated wholesale electricity markets. She declined through a spokesman to comment. Tucker didn't respond to requests for comment sent to the Bank of England.
Bankers who told each other Gensler's resume would make him sympathetic were soon disappointed. It had been more than a decade since he'd departed Goldman Sachs. He left the Treasury in 2001 when Republican George W. Bush became president. In the run-up to the global financial crisis he was largely focused on being a stay-at-home father for his three daughters and a caregiver for his wife, an artist. She died of cancer in 2006.
Rebuffing Bankers
In the intervening years his views had changed. In January 2010, Gensler accepted an invitation to lunch at New York's Waldorf Astoria hotel with executives from Goldman Sachs, Credit Suisse Group AG, Deutsche Bank AG, Bank of New York Mellon Corp. and others. He rebuffed their concerns, saying his duty now was to taxpayers, according to people who attended. Asked to name the main obstacle to an improved system, the people said, he gestured at his hosts and replied: "You."
Congress was already at work on the Obama administration's oversight plan for Wall Street, which reimagined regulation in areas including capital requirements, consumer finance and mortgages. The derivatives piece landed in the Senate Agriculture Committee. During drafting sessions, Gensler sometimes sat at the table reserved for staff, advising its Democratic chairwoman, Blanche Lincoln of Arkansas.
Gensler was reflecting a changed climate in Washington, where Wall Street wasn't welcome on the front lines in Congress as investigators probed allegations of wrongdoing during the financial crisis. The industry that wanted to fight "tooth and nail" against swap rules turned to others to make its case, said Michael Barr, then an assistant Treasury secretary and an Obama administration point man on Dodd-Frank.
Fortune 500
"They brought in CEOs and treasurers of Fortune 500 companies to say how great it was for America that there was this closed dealer market," Barr said.
Industrial firms such as Deere & Co. told lawmakers their balance sheets would crater if they had to post collateral on trades hedging costs of things like fuel. They secured one of the few exemptions written in the law. Since these so-called end users usually buy swaps from banks, the carve-out protects one Wall Street profit center.
The core financial industry won little in the drafts of Dodd-Frank, thanks in part to Gensler. As lawmakers debated the bill, he took sections home Friday nights. His aides would wake up on Saturdays to e-mails with suggestions and questions that he often expected them to deal with before Monday morning, according to former and current employees.
'Cheat Sheet'
Dan Berkovitz, the CFTC general counsel at the time, and John Riley, the agency's head of legislative affairs, sent text and suggestions to Democratic staff members on the House Financial Services and Agriculture committees that ended up in the bill almost verbatim, e-mails show.
"Here's the cheat sheet," Riley wrote as he offered advice to a House staff member in October 2009. In January 2010, he gave Senate aides Gensler's thinking on trading rules, adding that a "more formal legislative proposal" would follow.
Gensler campaigned publicly and behind the scenes. He published a Feb. 24, 2010, column in the Financial Times titled, "How to stop another derivatives inferno." He forwarded the piece to Obama, with a note telling the president that two top priorities — plugging the end-user loophole and making trades more transparent — "are being weakened as a result of opposition from Wall Street and corporate interests," according to a copy of the memo attached to an e-mail to Congress.
Cocktail Hour
In June 2010, as House and Senate lawmakers negotiated the final language in Dodd-Frank, Gensler was seen by reporters padding around in his stocking feet for the late-night sessions. He whispered in Lincoln's ear to ward off last-minute changes.
Hours after Obama signed Dodd-Frank that July, Gensler invited Capitol Hill staff members who had worked on the derivatives section to a briefing. The 18 months he had spent pressing his case had paid off: Most of what he and the administration had wanted, down to exact language in many cases, was now enshrined in law. "I felt terrific," Gensler said.
Annette Nazareth, one of the finance industry's leading Washington lawyers, heard about Gensler's briefing. The meeting was to be "followed by a cocktail party as a 'thank you.' How gracious," she wrote in mock admiration in an e-mail to a friend who worked at the SEC on July 22, 2010.
Gensler is "the James Brown of the regulatory agencies," Nazareth added, comparing him to the legendary hardest-working man in show business.
High Gear
The celebration was short. Gensler had to defend his congressional victories.
An agency that might only write five rules in a year was now going to do 60. He kicked the CFTC staff into high gear, reorganizing them into teams around each rule. He exiled team leaders who didn't share his mission or perform to his standards, people with knowledge of the process said.
He ran the show more like a Goldman Sachs operator than a government bureaucrat. After he pledged to hold a transparent and cooperative process, other commissioners felt cut out of the communication loop. They were frustrated and angry when Gensler showed them complex proposals late in the process when he had been discussing them for weeks with the staff, according to former and current CFTC employees.
Staff members unaccustomed to working long hours, nights and weekends would occasionally sleep on the couches on the ninth floor, where the commissioners had their offices, the people said. With the industry arming for a major pushback, Gensler told them, speed and dedication were essential.
An early battle revolved around a number — one that the CFTC wanted to write into the rules to inject competition into the swaps business.
Slicing Profits
Gensler's idea was to crack open a closed system and create an electronic market more like futures or stocks. Under existing procedures, someone wanting to buy a swap was free to contact a single broker, often a large bank, and make a deal over the phone that would stay secret.
Big banks and brokers favored the status quo. If forced to show their cards to the entire market, others could see their bets and undermine their strategies. Their cut of the deals — and profits — might also come under scrutiny from customers and regulators. Electronic trading and other rules could slice bank revenue from over-the-counter swaps by 35 percent, from $33 billion to $21.2 billion, the Deloitte study said.
Gensler wanted many of the electronic transactions to take place on a new kind of platform, competing with banks and with futures exchanges owned by CME Group Inc. of Chicago and Atlanta-based IntercontinentalExchange Inc. Publicly visible prices on these Swap Execution Facilities, or Sefs, would shift the advantage "from Wall Street to Main Street," Gensler said.
Bidding Battle
How many bids would a swap buyer have to solicit? That was the number that set off a two-year fight between Gensler and the industry.
The topic was discussed more frequently than any other issue on the CFTC's agenda. It came up during at least 375 meetings with outsiders, according to data assembled from published CFTC records.
One of the lobbyists most often present at those meetings was Micah Green of Patton Boggs LLP, records show. His firm was hired by the Wholesale Markets Brokers' Association Americas, a trade group that includes swap brokers GFI Group Inc. and ICAP Plc, which reported spending more than $1 million on legal and advocacy work in the year ending June 2012. Green declined to comment. Along with Green, ICAP's representatives were the top four visitors on the issue. Their main concern was preserving trading by phone.
Lobbyists also dragged out consideration of the rule by encouraging complaints from Capitol Hill, exploiting differences among the CFTC's commissioners and seeking help at the SEC. Some firms that mulled opening Sefs drifted away during the delay.
Falling Back
At first, Gensler championed a fully public and electronic system, in which traders would only rarely be able to cut deals in private on the phone, according to a summary he released in late 2010.
Scott O'Malia, a Republican commissioner, sided with industry arguments that Gensler's plan went beyond the CFTC's authority under Dodd-Frank and wasn't flexible enough for swaps that don't trade as often as futures. The market needs time for "a transition or an evolution," he said in an interview.
Gensler backtracked. He agreed that not everyone in the market needed to be asked for a bid. Instead, a swap buyer would have to request a set number of bids.
Gensler proposed that the number be set at five.
Immediately, banks and big swap buyers such as money management firms BlackRock Inc. and Vanguard Group Inc. set out to cut the number. One tactic was to encourage a split with the SEC, which regulates about 5 percent of the swaps market and had to issue its own Dodd-Frank trading rules.
The SEC was receptive. The agency had "a higher level of comfort than the CFTC" with letting market participants decide how many bids would be ideal, according to then-SEC chairman Schapiro. Her agency already oversaw off-exchange trading in equity and bond markets.
Gensler's number felt arbitrary, Schapiro said in an interview. "How do you pick five?" Schapiro said. "Why not 10? Why not 3?"
The SEC torpedoed the CFTC's idea, proposing that the number be reduced to just one.
Meanwhile, the CFTC stoked interest in the new system. In March 2011, it staged an event dubbed Sef-a-Palooza. Representatives from two dozen firms traveled to Washington to show their wares to a standing-room-only crowd. Among them were Tradeweb Markets LLC, MarketAxess Holdings Inc. and GFI Group Inc. (Also presenting was Bloomberg LP, parent of Bloomberg News, which has established a Sef.)
The CFTC predicted as many as 40 Sefs would be set up as competitors to the banks and exchanges.
'Too Long'
Hirani, the derivatives pioneer who had a walk-on role in the 2010 film "Wall Street: Money Never Sleeps" and was one of the first to trade credit swaps electronically, initially was caught up in the hoopla and planned to start a Sef.
In time, he changed his mind. "I thought it would take too long based on our judgment of the lobbying that market participants would unleash," Hirani said.
His prediction was borne out. Using the SEC's proposal as a cudgel, banks including Goldman Sachs, JPMorgan and Deutsche Bank kept showing up at the CFTC arguing to drop the minimum entirely, records show.
On Capitol Hill, where banks were regaining influence as the credit crisis waned, the lobby found sympathizers in both parties, including Representative Barney Frank, the Massachusetts Democrat who was one of the bill's namesakes. At a November 2011 hearing, he called the CFTC's proposal "more intrusive and more complex than was necessary."
Swing Vote
The swing vote on the five-member CFTC was Mark Wetjen, a Democrat and former policy adviser to Senate Majority Leader Harry Reid. Wetjen, who joined the agency in October 2011, had little experience with swap rules while working on Capitol Hill. In February 2013, he floated a plan for two bids. "It was the asset managers and hedgers who were most convincing, and they wanted it flexible," he said in an interview.
The debate raged in mid-March when bankers and regulators gathered for an annual industry conference in Florida at the pink-stucco Boca Raton Resort and Club -- the same meeting where Gensler took his turn on the dance floor.
By the last week of April, Gensler realized the fight was over. He accepted Wetjen's plan for two bids. His only consolation: The limit would rise to three bids after a year.
"I would have preferred to keep it closer to the five," Gensler said in the interview.
Bart Chilton, a Democratic member of the CFTC, said he voted reluctantly for the compromise. "We certainly did only the bare minimum of what the drafters of Dodd-Frank envisioned," Chilton said in an interview. "In the end, I think we caved in order to finalize the rule."
Avoiding Labels
There was another number regulators had to pick: What amount of derivatives could a firm sell before it was big enough to be formally designated a swap dealer? That would mean the government would be constantly looking over its shoulder.
The task had its origins in a financial crisis a decade earlier. A small power company born in Nebraska transformed itself into a massive derivatives trading firm that was allowed to operate with almost no CFTC oversight. It became Enron Corp.
While Enron's 2001 collapse was fueled more by accounting fraud than derivatives, government officials had been seeking for years to ensure that no company could escape regulation by essentially pretending to be in a less-risky business.
Gensler's initial plan would slap the label "swap dealer" on anyone selling at least $100 million worth a year. That would capture dozens of firms far from Wall Street.
Hedging Prices
Energy executives who said they expected to escape Dodd- Frank by winning the end-user exemption from Congress rushed to get the $100 million threshold raised. Their yearlong campaign involved newly formed industry groups that wouldn't disclose members, well-timed campaign contributions and another back-door assault by the SEC.
To see that the business went far beyond banks, all regulators had to do was to scan the roster of the leading trade organization for derivatives. Among the biggest members of the International Swaps and Derivatives Association were BP Plc, Shell and Koch Industries, which use swaps to hedge the price of oil and natural gas.
Over the past three decades, these energy companies and others built up side businesses selling derivatives to customers. Koch, for example, has said it was the first dealer of a swap to a major airline looking to hedge fuel costs.
'BP Loophole'
The energy companies said they weren't banks and shouldn't be treated as if they were. Gensler saw it differently: The more of the business that remained outside the stiffest regulations, the more chance of another blow-up. He began calling it the "BP loophole."
When meeting with lobbyists and industry lawyers, Gensler was quick to show off his mastery of market details, which left some visitors with the sense he had already formed his plan and wasn't interested in their suggestions, according to multiple participants.
Terrence Duffy, executive chairman of CME Group, found Gensler to be different overall than previous CFTC chairmen. "They had a more collegial approach towards making sure the market had an understanding of what they were thinking," he said in an interview.
Red Font
Early on in the swap-dealer debate, David Perlman of Bracewell & Giuliani LLP in Washington, a former chief counsel of Lehman's commodity business, emerged as a leader of the opposition to Gensler. His Coalition of Physical Energy Companies included Shell, Apache Corp. and NRG Energy Inc.
Perlman rewrote the text of Gensler's proposal and sent it to the CFTC in early 2011. His version raised the $100 million bar to $3 billion. He crossed out the agency's number in red font and put his in blue so no one could miss it, according to a copy later posted on the agency's website.
The $3 billion threshold could help get many of his clients out from under the rules. "The consequence of crossing that line is significant," he said in an interview.
Another trade group, the Commodity Markets Council, suggested to the CFTC that the cutoff be jacked up to $10 billion.
BP, Koch, Shell, Vitol Group, ConocoPhillips and Constellation Energy Group Inc. joined together in yet another association — a working group of commercial energy firms, according to public records and people with knowledge of the group's members, which haven't been publicly disclosed.
'Very Harmful'
The group hired Sharon Brown-Hruska, a former acting chairman of the CFTC now with NERA Economic Consulting. She co- wrote a paper concluding that the agency's plan to oversee energy firms as swap dealers would be "very harmful" for consumers. Republicans on Capitol Hill e-mailed it to reporters.
Brown-Hruska said in an interview the study was effective because it "focused on empirical analysis." The CFTC proposal "just layered on costs and it would discourage legitimate and important hedging activity by those firms," she said.
Gensler wouldn't budge from his $100 million.
After Republicans became a majority in the House in 2011, their staff members met privately with financial lobbyists in the Rayburn office building. They strategized on ways to persuade Democratic members to sign onto bills aimed at slowing Gensler down, two people with knowledge of the sessions said.
Campaign Contributions
In October, Republican legislators wrote a bill that would order a $3 billion threshold for swap dealers. A few Democrats were on board, including Dan Boren of Oklahoma and Mike Ross of Arkansas. While never considered by the full House, it gave lawmakers a chance to hold a public hearing, during which they slammed Gensler's plan.
One company that testified in support of the legislation was Constellation Energy. The political action committees of the Baltimore utility and the company that was in the process of acquiring it — Chicago-based Exelon Corp. -- together became among the largest contributors to the 2012 campaign of Representative Randy Hultgren, an Illinois Republican who was the bill's sponsor. They gave a total of $12,500, federal election records show.
Hultgren said in a statement that he backed the bill to protect a "diverse group of Main Street end-users" that he said included Exelon and farmers' cooperatives from "overly broad and burdensome rules that would threaten consumers with higher prices."
Gallagher's Plan
Paul Elsberg, a spokesman for Exelon, said the firm backs candidates "who we believe will support sound energy policies" for Illinois and the nation. "Dodd-Frank should not impose significant costs or restrictions on the ability of companies like ours to manage risk and to hedge our physical exposure to physical commodity prices," Elsberg said.
At the SEC, industry arguments found a receptive audience in Daniel Gallagher, the newest commissioner and an avowed free- market Republican. SEC staff lawyers already were bucking Gensler, proposing a $1 billion threshold. Gallagher wanted it higher, at $10 billion, to capture only big Wall Street players.
Working with the SEC staff, Gallagher produced an alternative plan. It eventually called for an $8 billion level and a compromise that would drop it to $3 billion after a few years.
Gallagher worked quietly to sell the idea to his counterparts at the CFTC, according to people at both agencies. He invited Republican commissioners Sommers and O'Malia to lunch and spoke with Wetjen by phone, the people said.
'Little Caper'
Gensler got wind of Gallagher's campaign and called him in April 2012, a week before the agencies were scheduled to vote on the rule, said a person with knowledge of the conversation. The two men had been on friendly terms when both commuted by Amtrak between Washington and Baltimore. They hadn't talked or crossed paths in the five months since Gallagher joined the SEC.
After exchanging some pleasantries, Gensler told Gallagher he knew about "your little caper," as Gallagher later related to others at the SEC. Gallagher responded that he was merely attempting to help put forth responsible regulation.
In the end, Gensler capitulated. He was one of nine officials at both agencies who voted for the rule. Gensler said he would have liked a lower bar, but with so many rules to work on it was significant that "we got it done."
The energy lobbyists were ecstatic. The NERA consulting firm, which had been hired by BP, Koch and the other energy companies, boasted on its website about the CFTC's "significant reversal of course."
Escaping Label
Firms including Exelon, ConocoPhillips, AGL Resources Inc. and MidAmerican Energy Holdings Co., some of which had warned investors that their companies might need to register as swap dealers, now reported they would escape the label.
The company that gave the BP Loophole its name wound up registering with the CFTC as a swap dealer after all. Scott Dean, a spokesman for BP, declined to comment. So far, Cargill Inc. is the only other energy or commodity firm to register.
One consequence of the energy firms' win: Banks continue to dominate the business. "The large institutions who have always been major players in the swaps business are probably the only ones who can afford to be dealers because it is costly," said Sommers, the former CFTC commissioner.
Some energy companies agreed. "This seems directly counter to the goal of Dodd-Frank to increase competition and reduce the concentration in large financial institutions," said Lance Kotschwar, a lawyer for Gavilon Group LLC, who has worked on the issue for the Commodity Markets Council.
Border Security
Gensler still held out against pressure to erode the CFTC's authority overseas. Few outside his inner circle realized how much of a hand he had in Dodd-Frank's language on the matter.
The provision in the law begins by saying that the new derivatives oversight wouldn't apply to trading outside the country. Then comes the key wording: "unless those activities have a direct and significant connection with activities in, or effect on, commerce of the United States."
"I know who here drafted it," Gensler said with a grin, without disclosing the name. "I know exactly who. And I thank them from time to time."
The banking industry, despite employing hundreds of lobbyists and lawyers to watch the legislation, didn't grasp its significance for almost a year. As the CFTC was writing its policy, lobbyists rushed to delay or kill it, enlisting foreign regulators and U.S. lawmakers in their campaign.
'Next AIG'
To Gensler and his supporters, there was no sense clamping down on swap trading if the agency couldn't see what U.S. firms did overseas. Didn't AIG, which sold swaps out of a London subsidiary and held a French banking license, prove the danger?
"If you develop a set of rules that are designed to prevent the next AIG and it wouldn't prevent the next AIG, that's a problem," said Barr, the former Treasury official.
While other countries were developing their own rules, some U.S. officials said they might not be as comprehensive or transparent.
Gensler's education on the issue began much earlier than AIG. Working for Goldman Sachs in the early 1990s, he helped oversee the firm's swaps book in Asia, which he said was recorded on one "massive Lotus spreadsheet."
As a Treasury assistant secretary in 1998, Gensler was sent on an emergency mission to Greenwich, Connecticut, one Sunday to see if the government could stop the implosion of hedge fund giant Long-Term Capital Management.
Cayman Islands
After investigating the situation, Gensler rushed back to Washington for the Jewish holiday of Rosh Hashanah, calling Treasury Secretary Robert Rubin from the airport with his conclusion: Nobody had any idea what would happen to the firm's $1 trillion swaps portfolio because it was handled out of a legal entity in the Cayman Islands. Gensler knew well how the industry used such business structures overseas. He had helped set them up at Goldman Sachs.
"I will never forget it," said Gensler. "This was not a good phone call to make to the secretary of Treasury."
So when lawmakers were drafting the derivatives bill in October 2009 and considered its overseas reach for five minutes during a seven-hour hearing, Gensler took special notice.
He put his lawyers to work. In late November, the CFTC's Riley sent Agriculture Committee aide Clark Ogilvie and other House staffers four paragraphs for an "extraterritoriality provision," according to an e-mail.
Wake-Up Call
The language in Riley's e-mail was included verbatim in a 228-page amendment and approved on the House floor without debate. It never left the bill. In late December, after the House passed the measure, Riley sent the language to the Senate. Meanwhile, bank lawyers, including Nazareth, told clients the provision would limit the CFTC, not expand it, according to reports issued by her firm.
"I think that it was fairly common for people at that time to be reading it as a limitation," Nazareth said in an interview.
Ten months later, Wall Street got its wake-up call. At an October 2010 public meeting at the CFTC, Berkovitz, the general counsel, announced that the law gave the agency "a wide reach and a broad reach" overseas. That could extend the rules to any branch or affiliate of a U.S. bank, even if the branch was selling swaps to non-U.S. customers.
Bankers left the CFTC stunned, according to several participants.
Bank Coalition
They quickly increased their lobbying. One of their main advocates was Edward Rosen, a partner with Cleary Gottlieb Steen & Hamilton LLP, who became the most frequent CFTC visitor on the issue, records show. Rosen was hired by an informal coalition of about a dozen large banks including Credit Suisse, Citigroup Inc. and Deutsche Bank. Each member kicked in at least $150,000 to start, according to two participants. Rosen didn't respond to requests for comment.
The banks also enlisted allies in Congress and among overseas regulators. JPMorgan lawyer Don Thompson, testifying before a House panel in February 2011 on behalf of Sifma, said some of his firm's overseas clients were threatening to take their business to non-U.S. firms like "Barclays or Credit Suisse or a European bank" that wouldn't be subject to Dodd- Frank and could offer their services more cheaply.
Three months later, Senator Charles Schumer, a New York Democrat with close ties to Wall Street, led 18 members of his state's congressional delegation in signing a letter saying Gensler's proposals could have "significant negative effects on the competitiveness of U.S. institutions."
Foreign Banks
Later in 2011, the law's co-sponsor Frank weighed in, signing a letter to Gensler saying that "Congress generally limited the territorial scope" of the derivatives law. Frank said he was mainly motivated by concern about conflicts between CFTC and SEC rules.
Foreign banks were focused on the CFTC's reach as well, not wanting certain of their own trades to fall under Dodd-Frank. The Institute of International Bankers, a trade group, led an effort to contact foreign regulators and politicians to put pressure on their American counterparts, according to people familiar with the meetings. In the end more than a dozen foreign regulators complained to U.S. officials about the CFTC.
As the pressure on Gensler increased, he got cover from the Treasury secretary. Geithner, in a June 2011 speech to bankers in Atlanta, said strong U.S. rules overseas would help avoid "a race to the bottom around the world." He singled out the U.K. for its past "strategy of light-touch regulation to attract business to London, away from New York and Frankfurt" noting it "ended tragically."
British Complaint
Blowback from the speech didn't help Gensler's case. British Prime Minister David Cameron went to Obama to complain, according to an official briefed on the matter.
In a small victory for the banks in late 2012, Gensler agreed to a six-month delay on determining the rule's reach.
The squeeze on Gensler tightened as the July 12, 2013, deadline loomed. Banks and foreign regulators pressed for a further delay, and Gensler faced an insurrection at his own agency. "No one has ever accused Gary Gensler of being reasonable," Sommers said at the time.
Gensler hadn't even been able to lock in votes from the other two Democrats. Wetjen gave a speech in London June 25 in support of a slowdown. Chilton called for a compromise.
Then Gensler was summoned to Lew's offices at the Treasury.
Pale Echo
The July 3 meeting was an echo of the 2009 meeting that launched his regulatory crusade. Gensler again found himself in a room with the heads of the Treasury and SEC. This time it was Lew and Mary Jo White instead of Geithner and Schapiro.
Lew, who had replaced Geithner in February, wasn't happy to be drawn into the battle, according to the people briefed on the private session, who spoke on condition of anonymity. He said at the meeting that while he didn't want to undermine Gensler's plan, he wanted the CFTC chief to better share information with his European counterparts and the SEC.
After the discussion, Gensler called European negotiators offering to give up some of his demands, a person with knowledge of the talks said. The deal was struck with Europe 10 days later and then internally with Wetjen.
Spokesmen for Lew and White declined to comment.
While details are still being worked out, the compromise means trades involving overseas parties, even if handled by a U.S.-based bank, may fall under rules of another country provided those rules are deemed comparable. The process for making those rulings remains under debate.
EU Displeasure
The international hole that Gensler wanted to plug remains at least partly open.
The outcome was a relief to banks that had argued Gensler's original vision was too ambitious and would have concentrated too much supervision in an agency ill-equipped to manage it.
Gensler's foreign counterparts were especially angered by his brinksmanship.
Michel Barnier, the EU commissioner responsible for market regulation, said it was unfortunate that the agreement had to come "on the eve of the CFTC's last meeting" on the matter.
The process, Barnier said, "isn't necessarily a model."
Weekend Conversion
As the CFTC retreats on foreign trading and other fronts, the market that's left for it to oversee is shrinking. Firms are designing contracts so that they fall outside the swaps rules.
The phenomenon has become known as futurization. As far as financial engineering goes, it's simple: take a swap and call it a future.
The first part of the business to move in that direction has been energy. Large energy companies with total swap dealing near the $8 billion limit were eager for a way to take some of their transactions off the count.
One weekend in October 2012, just before the firms had to start tallying trades under the new rules, ICE, the Atlanta- based exchange, put its futurization plan into effect. On Friday contracts were "swaps." On Monday they were "futures."
Within weeks, ICE and CME implemented plans to create similar contracts for the much larger markets in interest-rate and credit swaps.
If enough swaps migrate to futures exchanges, the profitability of alternative trading platforms like Sefs may be less robust. (Bloomberg LP, parent of Bloomberg News asked a federal court to force the CFTC to act to limit futurization. A judge dismissed the lawsuit, saying that the company had neither the standing nor the facts to support its case.)
About a dozen Sefs have been established so far. Hirani, the derivatives pioneer, decided in the end to hedge his bets, starting a firm that is both a Sef and a swaps exchange.
CFTC 'Slap'
Advocates of less regulation say futurization shows the folly of the government spending several years drawing up complex rules for dynamic markets.
"It is a slap in the CFTC's face," said Hester Peirce, a senior research fellow at the Mercatus Center at George Mason University, who was on the Republican staff of the Senate Banking Committee when Dodd-Frank was drafted. "It's the agency being told this whole scheme it dreamed up is not going to work."
CME Group and ICE, along with London-based LCH.Clearnet Group Ltd., are also at the center of another vexing question about the new oversight apparatus. They operate swap clearinghouses. The rules for the first time require them to function as third parties for trillions of dollars in trades moving through their platforms, holding collateral from buyers and sellers in case a transaction goes bad.
The benefit is that clearinghouses will become central hubs where a bank's exposure to derivatives can be monitored and regulators can get information on the market.
Both Sides
In the aggregate, though, a clearinghouse also winds up holding all of the risk because it acts as the other side of the trade for both buyers and sellers.
If a market blows up, the clearinghouse could turn into a sort of supercharged AIG, unable to cover the losses. That could create "potential vectors for the transmission of systemic risk," the Clearing House Association, a trade group representing the largest commercial banks, said in a December 2012 report. Banks have been warning that clearinghouses aren't holding enough capital and are using less-liquid collateral, such as corporate bonds rather than cash.
Duffy, of CME Group, said the exchange has put protections in place. "I would have concerns, too, if my trades were in a clearinghouse that I did not know exactly how was being risk- managed," Duffy said. "We are working with the dealers to make sure they're comfortable."
Bailout Risk
Gensler, too, has expressed concern about clearinghouses. In May 2010 he wrote to Lincoln and Senator Christopher Dodd, a Connecticut Democrat who co-authored the financial regulatory law, in a failed attempt to keep the firms from being put under Federal Reserve supervision. Access to the central bank's emergency lending could raise "the risk of clearinghouse failure and the possible need for a future bailout," he wrote.
Gensler said that having central clearing is still better than entrusting the system to individual banks.
Analyzing whether the CFTC's new rules will make the financial system safer than it was in 2008 remains an exercise in estimates. Derivative trades are still largely private and records kept by clearinghouses and other information repositories aren't standardized. A review of the best available data from those sources and government filings shows that CFTC regulations for trading, clearing and reporting about transactions may be felt in less than a sixth of the market.
Calculating Market
The total value of over-the-counter derivatives traded worldwide is $633 trillion, according to the Basel, Switzerland- based Bank for International Settlements. More than half of that is held outside the U.S., according to government records, and could be mostly excluded from CFTC oversight.
Of the $300 trillion in derivatives held by U.S. banks, only a portion would fall under all the new restrictions, according to the review. The biggest banks sometimes trade half their swaps with overseas clients, and under the cross-border policies, those deals might be subject to foreign law instead of Dodd-Frank. After subtracting trades that fall under the foreign-exchange and end-user exemptions, as little as $100 trillion of the total $633 trillion could feel the full force of Gensler's rules.
Jeffrey Harris, a former CFTC chief economist, said the exemptions mean that "a very small fraction of the total market" will fall under the new requirements.
"It may be as large as $100 trillion, but at the current time it is probably substantially smaller than that," he said.
Gensler's View
Gensler said that such a calculation doesn't fully capture the scope of the CFTC's new authority, which is laid out in 60 new regulations that touch on a broad swath of derivatives held in U.S. banks, a market worth $300 trillion. Swap dealers have already reported trillions of dollars in transactions that wouldn't have been public under the old system, he said.
"The market is shifting," Gensler said. "The public is far better off today with the transparency and the reforms we put in place."
As the CFTC prepares for operational oversight, it faces more challenges. No longer a backwater, the agency's resources haven't caught up with its new responsibilities. This year it has a $207 million budget and 700 employees, making it less than a fifth of the size of the SEC.
It is "completely wrong" for Congress to keep the CFTC's funding so low, said Schapiro, who as SEC chairman had a $1.4 billion budget at her disposal. If that isn't fixed, she said, "We will have a false sense of security about what these rules can do for the stability of the financial system."
Chairman's Future
For Gensler himself, the future is also undetermined. With his tenure required to end by Dec. 31, Obama has given no sign that he will be reappointed to the commission, according to people briefed on the matter.
Investor advocates see that outcome as a measure of his success. Gensler shows that "you can go through the revolving door and serve with independence and integrity," said Jeff Connaughton, a former Democratic Senate staff member who was involved in the Dodd-Frank debate and last year wrote a book chronicling the rise of Wall Street's lobbying machine.
Hirschmann, of the Chamber of Commerce, said that while Gensler has dealt in a straightforward way with his trade group, he overreached on some proposals. He said it's unclear whether the rules will accomplish Gensler's goals.
"My guess is we will find some of it works, some of it didn't, and we will have to come back and fix it," Hirschmann said.
Gensler said he understood from the beginning that the original vision wouldn't survive intact.
"Along the way that means there is some moderation and some compromise," he said.
He and his inner circle wanted to focus on the most important measures and were able to "maintain the core," he said. Even with reduced scope, the accomplishment is enormous, he said.
"This is a $300 trillion market coming out of darkness," Gensler said.
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Editor's note: Since this article was originally published in April 2013, Project codename "GeoFlow" has been renamed Power Map as part of the new Power BI for Office 365 offering.
Today we are announcing the availability of the project codename "GeoFlow" Preview for Excel 2013, a result of collaborations between several teams within Microsoft. GeoFlow lets you plot geographic and temporal data visually, analyze that data in 3D, and create interactive "tours" to share with others.
GeoFlow originated in Microsoft Research, evolving out of the successful WorldWide Telescope project for scientific and academic communities to explore large volumes of astronomical and geological data. Researchers collaborated closely with the Office product team to usher GeoFlow from its research lab inception to this public preview availability in Excel. GeoFlow adds to the existing self-service Business Intelligence capabilities in Excel 2013, such as Microsoft Data Explorer Preview and Power View, to help discover and visualize large amounts of data, from Twitter traffic to sales performance to population data in cities around the world.
With GeoFlow, you can:
- Map Data: Plot more than one million rows of data from an Excel workbook, including the Excel Data Model or PowerPivot, in 3D on Bing maps. Choose from columns, heat maps, and bubble visualizations.
- Discover Insights: Discover new insights by seeing your data in geographic space and seeing time-stamped data change over time. Annotate or compare data in a few clicks.
- Share Stories: Capture "scenes" and build cinematic, guided "tours" that can be shared broadly, engaging audiences like never before.
Unlocking insights within geospatial data like ticket sales is now possible with GeoFlow.
To learn more about how people are already using GeoFlow to gain and share insights in conjunction with existing self-service business intelligence tools in Excel, go the Excel blog.
Download the Add-in for Excel 2013 with Office 365 ProPlus or Office Professional Plus 2013.
Find out more about Microsoft BI.

subset: commoncrawl


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DoubleLine CEO Jeffrey Gundlach has a new twist on the thinking about the supposed "Great Rotation" from bonds to stocks that market watchers have been warning about this year, and it goes something like this: Great Rotation? Don't be ridiculous—and we're not in a bond bubble, either.
"The Great Rotation is a ridiculous notion. It's utterly illogical," Gundlach (left) told a full house on Thursday at the New York Yacht Club in Midtown Manhattan. "You could also call it a Great Rotation into bonds from stocks."
In other words, Gundlach's understanding of the movement of money between the equities and bond markets incorporates a broad spectrum of diversifiers outside of traditional fixed income and domestic equities. He sees money and opportunities flowing in and out of many asset classes—which explains why he also doesn't believe in the so-called "bond bubble," either.
Of course, this is coming from a well-known bond guru who made news last month when he announced that he had bought more long-term Treasuries in the last month than he had in the last four years. Gundlach's purchase of a pile of benchmark 10-year Treasuries happened when yields rose briefly above 2% in late January and early February.
'Who Has Money in a Treasury Bond Fund?'
But he didn't advise his Yacht Club audience of investors, brokers and journalists to buy Treasuries. Gundlach asked for a show of hands in response to the question, "Who here in this room has money in a Treasury bond fund?" No one raised a hand, and Gundlach wasn't surprised, saying that the U.S. Treasury clearly doesn't want any customers outside of central banks and active traders like himself.
Gundlach also discouraged investors from index funds pegged to the Barclays U.S. Aggregate Bond Index, saying "very few people are going to want to own this thing" when they see 12-month trailing returns. The index, which tracks the broader debt market the way the S&P 500 tracks the stock market, declined 0.12% in the first quarter, largely because U.S. Treasuries and government-backed mortgage debt have gained a larger share of the index, according to a Wall Street Journal story published April 2.
The Federal Reserve and its chairman, Ben Bernanke, are quite aware of the consequences of their program of quantitative easing, but as out of control as QE seems, they see no observable negative consequences, so they will keep on buying up government and agency debt for years to come, Gundlach said.
(Sophie Gilbert, director of capital market insights at Russell Investments, also doesn't believe in a bond bubble. The term "bubble" suggests that there will be a steep drop in prices of 15% to 20%, Gilbert said in a recent analyst note. "For bonds as measured by the Barclays U.S. Aggregate Bond Index to drop so significantly, interest rates would have to rise by about 5%. This would effectively be a rise of the 10-year U.S. Treasury yield to 7%, a highly unlikely scenario given that the Fed has announced its plans to keep interest rates low with continued QE policies until mid-2015," she wrote.)
Opportunity Outside the U.S.
Meanwhile, Japan has initiated a giant quantitative easing program of its own that puts U.S. QE to shame, Gundlach said. The U.S. program would have to pay out $250 billion a month to match Japan—which is the sort of level that monetary dove New York Times columnist Paul Krugman keeps pushing for, Gundlach noted, adding that he's keen to see the results of Japan's QE experiment.
So with the developed world continuing down the path of QE and sub-3% yields, what does Gundlach like these days in the fixed-income markets? Non-traditional picks: global high-yield corporate debt, which yields 6.64% as of Dec. 31, according to Bank of America-Merrill Lynch index data; bank loans, yielding 6.26%, nonagency residential mortgage-backed securities, yielding 6.00%, and emerging-markets corporate and sovereign debt, both yielding above 4%.
Read Gundlach Beats Gross by 'a Nose': Morningstar Report on AdvisorOne.


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Mosby, 1983 - Biogeography - 643 pages
Biogeography, Second Edition combines ecological and historical perspectives to show how contemporary environments, earth history, and evolutionary processes have shaped the distributions of species and the patterns of biodiversity. It illustrates general patterns and processes using examples from different groups of plants and animals from diverse habitats and geographic regions. Written primarily for use in undergraduate and graduate courses in plant and/or animal geography, the book serves as a general synthesis and reference as well.
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DENVER (AP) The first recreational pot club to open in Colorado has already closed its doors, after a dispute with its landlord.
The White Horse Inn, in the tiny southern Colorado town of Del Norte, opened Monday as the first club in the state to offer patrons a chance to have a joint with their cup of joe. But owner Paul Lovato said Tuesday morning it was that early open date that caused problems.
Though Lovato had the keys to the building that housed the White Horse Inn on Monday, his lease on the building didnt start until Tuesday. Lovato said, when his landlord saw the publicity about the club, he canceled the lease before it took effect.
Colorado voters in November legalized use and limited possession of marijuana. Though it currently remains illegal to sell nonmedical marijuana in the state recreational pot shops wont be able to get licenses to open for about another year the law allows people to give marijuana to one another without compensation.
Lovatos business model called for having a storefront where customers could buy coffee, T-shirts and other items and then a private building next door where they could smoke free samples of marijuana.
He had planned to open just after New Years Eve ticked over into New Years Day. But pressure from another cannabis venue Denvers Club 64, a members-only gathering that intends to stage at different spots throughout the year caused Lovato to speed up his timetable.
Lovato said he opened for a few hours during the day Monday, long enough to be the first in the state and to draw the media attention that came with the distinction.
Wow guys! Lovato wrote on the clubs Facebook page. Today was a blast and a blur!
The publicity also drew the attention of his landlord, who was less thrilled about the business, Lovato said.
It was really unexpected, he said. I got caught up in the whole, I want to be the first to open thing. And I did that. I was the first. ... Im pretty proud of that.
Lovato said he may adopt Club 64s model for the next year and then try to open a recreational marijuana shop when hes allowed to. Until then, he said, he will do what he can to keep his vision for the White Horse Inn as alive as possible.
After Mondays opening, Lovato said he got calls from people in New Mexico who wanted to drive up to visit. He expected them to arrive sometime Tuesday morning.
Were doing the White Horse Inn at my house today, he said.


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Spa Valley Railway » Visitor Information » Our Stations » High Rocks Station
Alight at High Rocks for the eponymous ancient sandstone outcrops and country walks, if you want to see one of our trains from high up above the High Rocks is the place to go! Set in the gardens of the High Rocks Inn, it's an ideal place to sit and watch the trains go by, opened in 1998 as the original halt closer to Tunbridge Wells West closed in the 1950s our current station is popular with Wedding parties and tourists alike, there aren't many stations with an Inn next door!
High Rocks Opening Hours
The High Rocks themselves are open to the public from 10:15 Wednesday to Sunday (inc Bank Holiday Monday's) throughout the year, please note that they are closed on Monday's (which aren't a Bank Holiday) & Tuesday's.
High Rocks Entry Tickets
Entry Tickets to the High Rocks are sold in the lower Public Bar in the High Rocks Inn.
Anyone under the age of 18 must be accompanied by an adult. No admittance to the High Rocks to anyone under 18 if they are not accompanied by an adult.
There's ramp access from High Rocks Lane to the platform, or enter via High Rocks Inn.
The Inn has a large free car park that passengers may use, please note if you are boarding at this station you will normally find the access gate shut, as soon as the train arrives the Guard will open the gate and let you board our train!
The gate is then shut again before the train departs, this isn't to stop you travelling just to make sure all the happy users of High Rocks can't stray onto our platform during a busy Wedding for example.
Booking with vTicket


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Living Room Drapes, Blinds & Window Treatments
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Your living room drapes, blinds, and shades will help create an inviting and welcoming atmosphere for family gatherings and visiting guests while at the same time protecting your furniture from harmful UV rays and reducing the heat gain from direct sunlight. Top down/bottom up is a great living room window treatment option that lets in light from the top while maintaining privacy by keeping the bottom of the shade closed. Wood blinds and shutters can bring the warmth of real wood into your home while providing great light control and privacy. Roman shades can provide vivid color and pattern choices to showcase your unique style.
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Asriel Ivory Beige Freeform Swirl Texture Pillow Cover
Asriel is a soft chenille textured pillow cover featuring an eye-catching abstract pattern of freeform swirls. The magnificent swirling design is woven in a toasty ivory color and have a raised velvety soft texture. With its neutral color palette, Asriel wonderfully compliments many other pillow designs and brings grace and style to any space needing an upgrade. Offered in your choice of the designer pattern fabric on both sides or with a coordinating solid backside. Photographed on 20x20 insert.
** This fabric is not reorderable once sold out.**
Sizing: Please order by your insert size. For additional help, please review our Frequently Asked Questions and Sizing Guide.
Closure: Invisible zipper
Insert: Not included
Care: Dry clean recommended
Note: Pattern placement varies from pillow to pillow. No returns or exchanges are accepted on special order or clearance items. Please order a fabric sample to verify color and texture before purchase.
► For example: If you are using a 18x18 insert, order "Fits 18x18 insert" and we will make your pillow cover to fit appropriately.
► If you have an old cover that fits your insert well, measure your old cover and compare its dimensions to the size chart below to find the closest size. Contact us if you require assistance.
(at arrows, in inches):
|For Most Fabrics
|For Some Heavyweight Fabrics Only
|Fits 12x18 insert
|11.5 x 17
|11 x 17
|Fits 12x20 insert
|11.5 x 19
|11 x 19
|Fits 12x24 insert
|11.5 x 23
|11 x 22
|Fits 14x20 insert
|13.5 x 19
|13 x 19
|Fits 16x16 insert
|15.5 x 15.5
|15.25 x 15.25
|Fits 16x26 insert
|15.5 x 25
|15 x 24
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|17 x 17
|17 x 17
|Fits 20x20 insert
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|Fits 22x22 insert
|20.5 x 20.5
|20 x 20
|Fits 24x24 insert
|22 x 22
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|Fits 26x26 insert
|24 x 24
|23 x 23
|Fits 28x28 insert
|26 x 26
|25 x 25
► Don't see your size listed above? Request a custom size.
► Finished cover sizes are made smaller to best fit based on the insert size and fabric weight. For further explanation, please see this FAQ. The standard size chart is developed from actual testing on both feather and polyfil inserts commercially made and available on the market. The sizing is designed for your insert to fill out the cover completely for a full, plump appearance after stuffing in the manner shown in our shop's product photos and like pillows in interior design and architecture magazines. The finished pillow should have a nice, defined outline yet be comfortable to sit upon.
► The posted measurements are taken at the interior midpoints with the cover inside out.
► All covers are made with tapered corners for a professional appearance (no droopy corners!), and are tested on good quality feather inserts before shipping.
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Market News
|November 18, 2013
Oilsands epic stretches back more than a century
|The history of Alberta's oilsands --- a centuries-old story of exploration, geology, chemistry, political science, international finance and cutting-edge technology --- is also an epic tale of human achievement.
It is because of men like Maxwell Ball, Sidney Ells and Robert Fitzsimmons, Dr. Karl Clark, Sidney Blair and Count Alfred von Hammerstein, Ned Gilbert, Roger Butler, former Alberta premiers Ernest Manning and Peter Lougheed, and oil executives J. Howard Pew, Frank Spragins, Jack Armstrong, Rick George and Eric Newell that a curious and frustrating natural resource evolved into the beating heart of Alberta's thriving economy.
These oilsands pioneers and others, no matter the era, expertise or motivation, recognized and experienced both the potential and the pitfalls of chasing their bituminous dreams.
The industry has paid tribute to some of these trailblazers. Fitzsimmons, von Hammerstein, Manning, Newell, Butler, Armstrong and Spragins have been enshrined in the Canadian Petroleum Hall of Fame.
Those first on the scene near Fort McMurray in the late 1800s and early 1900s could see, smell, touch and taste the black substance oozing out of the riverbanks --- some could envision all manner of uses for the vexing, viscous stuff, from road material to wartime fuel.
But they also discovered then, as did their successors did from the 1950s through today, that no lasting good can come of even a vast trove of resource riches without an economical means of extraction, separation, upgrading and transportation to move bitumen from its Athabasca birthplace to markets that are always hungry for more.
This wasn't and isn't the stuff of gushers in Oklahoma, oil that practically flowed on its own to market. There was and is no subterranean pool of liquid black gold as von Hammerstein had hoped, and suggested to potential investors and politicians alike. This was bitumen. Tar sand.
"If you had it in a bucket, it's black, thick, sticky material," said Robert McClements, an American engineer who rose from plant manager at Great Canadian Oil Sands in Fort McMurray in the 1960s to chair of Philadelphia-based Sun Oil. "You couldn't get it out of the bucket. You had to scrape it out with a stick, it was that viscous. It was full of sulphur. The first thing you had to do was reduce the viscosity of that heavy, black tar. Call it oil, because it was basically very heavy crude oil, but when you looked at it, it sure looked like tar and smelled like tar."
That sticky substance --- 1.8 trillion barrels' worth trapped in Alberta's oilsands --- has had the world beating a path to Fort McMurray for 150 years. And those intrepid American and Canadian scientists and entrepreneurs who ran tiny pilot plants and pumped out modest production were eventually replaced by multinational corporations that now produce more than a million barrels per day.
"The most appealing feature of the oilsands was the fact that they were there to be taken," former CEO of Suncor Rick George wrote in 2012 in his autobiographical book Sun Rise. "Instead of cruising the world in search of oil hidden beneath ground and drilling 10 dry wells for every one that proved successful, why not focus on the largest known source of oil? A lot of minds went to work on the idea over the years. A lot of money was spent to make it happen and a lot of companies invested millions of dollars in the dream."
But it wasn't always full-steam ahead. Expansion and extraction activity in the oilsands is forever tied to the world price of crude oil and subject to the vagaries of geopolitics. After modest advances toward commercial production were made through the 1920s and '30s, the oilsands were somewhat forgotten after the Second World War. In 1946, oil was worth just $1.63 a barrel. After the discovery of conventional oil at Leduc in 1947 and Redwater in 1948, the province and industry focused on wells, not oilsands, and the price of oil rose only to $2.77.
The high cost of bitumen extraction would eat clean through that selling price and much, much more, a fact that scared away investors and left most of the bitumen in the ground, where it would stay until it made financial sense to dig it up.
The idle resource did not sit well with premier Ernest Manning, an unabashed oilsands booster who began beating the drum in the late 1940s. He led all the members of the legislature on a tour of the Bitumount plant in 1949, not long after the government took over control from Robert Fitzsimmons. He assigned the Research Council of Alberta's Sidney Blair to produce a comprehensive report on the bituminous sands of Athabasca, which was delivered in 1950. The report claimed that the cost of oilsands mining, separation, upgrading and transport to the Great Lakes was $3.10 per barrel. But Blair also figured that a $43-million plant could produce 20,000 barrels per day and a profit of at least five per cent.
The industry momentum gained from that groundbreaking report was intensified by a six-day gathering of oil executives and government representatives in Edmonton. The Research Council's board of trustees sponsored the Athabasca Oil Sands Conference from Sept. 10 to 15. About 120 delegates representing government and oil companies pored over the report at length --- 1,500 copies were printed and distributed throughout the province --- and were involved in technical sessions on oilsands geology, mining, processing and transporting the final product to market. About 75 of them then went to Fort McMurray to tour the Bitumount plant.
"There can be no doubt that it resulted in a substantial advance toward the goal of oil sand development," the Research Council stated in its 1951 annual report, which also lays claim to game-changing terminology. That name-changing proposal remains a hot-button issue today in the arena of environmentalists and politicians.
"It is the considered opinion of those concerned with the cause of oil sand development that the term 'bituminous sand' and 'tar sand' should be dropped. They both imply that the oil sands do not contain petroleum. This implication is false and has a bad influence from the standpoint of development. The proper term to use is 'oil sands.' "
More than 60 years later, that debate continues as opponents of oilsands development inevitably refer to it as tarsands.
Though J. Howard Pew was thousands of kilometres removed from the oilsands in Philadelphia, home of Sun Oil, in the 1950s he was keenly interested in their potential and shared Manning's grand vision of the lasting value of the resource. Still, the financials surrounding a full-scale enterprise were so bad that even Pew needed help convincing Sun Oil board members to spend money on that vision.
Timely assistance came in the spring of 1951 in the form of a letter from Ned Gilbert, Sun Oil's top landman in Canada.
On April 9 of that year, Gilbert's immediate boss, George Dunlap, told everyone in the Calgary office that Sun Oil management in Philadelphia was no longer interested in entering the tar sands due to prohibitive costs. Gilbert considered it a mistake, and went over Dunlap's head by penning a letter to Pew.
"I will not attempt to speak for the engineers and geologists," wrote Gilbert. "But I know of no other place in the world where I can, if I am the first to apply for a tar sands permit, obtain proven oil reserves for less than $1.40 per acre."
Pew was able to leverage the letter into board approval to proceed. By 1953, the Great Canadian Oil Sands consortium was formed, with Sun Oil as a major backer, and leases and patents were acquired. The oilsands area was on its way to full-scale development.
"I was sitting in the back of a room the other day and somebody was giving a talk on the oilsands and I thought to myself, if I hadn't written that letter, I don't think the oilsands would have started. It gave me quite the feeling," Gilbert told the Fort McMurray News last fall.
More than 60 years later, hundreds of billions of dollars have been spent on development and tens of billions more deferred, pending better economics.
The megaproject mentality that transformed the oilsands was fostered by men like Frank Spragins, the former Syncrude CEO, according to researcher Peter McKenzie-Brown.
"A number of colossal projects will have to be undertaken and such projects take time," Spragins told a university audience in 1977, a year before he died, according to McKenzie-Brown. "Twenty years for the Syncrude project, for example. Therefore, we should waste no time in getting major heavy oil and tar sands projects underway. To do this, it will take complete co-operation between industry and government with a good measure of support by the public. Hopefully the Syncrude Project will be a guide in this direction. Henceforth, if we know the way, the big word is action and that means action now ..."
The oilsands were always dependent upon men of action. A champion of the oilsands as Syncrude CEO in the 1980s and '90s, Eric Newell looks back fondly at the men, like Spragins, who set the table for him and his contemporaries.
"I grew up at Imperial Oil and our hero at the oilsands was Jack Armstrong, when he went head to head with the Exxon chair," Newell said in June.
After Armstrong's death in 2010, his son David told the Calgary Herald that his father considered his role in forming the Syncrude consortium to be his biggest achievement.
"It was a very difficult negotiation," he said, referring to his father's recollections. "From the initial start, I think Imperial's commitment was $325 million and it ended up being $625 million. He flew to New York and spoke with Cliff Garvin, who was chairman of Exxon at the time, and said, 'Cliff, I've spent $625 million of your money. You can either agree with me or fire me.' "
Oil was both plentiful and cheap, and the Syncrude project was offering a measly six-per-cent return, but Armstrong did not get fired. The Syncrude project had other major players in addition to Armstrong.
"Frank Spragins, the reason we call him a hero, twice Syncrude was turned down on their application," said Newell. "He wasn't going to give up."
The Syncrude consortium was formed in 1964. But with the GCOS plant online in 1967 and a massive oilfield discovered at Prudhoe Bay in Alaska in 1968, the prevailing fear was of a North American glut, not a shortage, so Syncrude's grand plans had to wait.
In 1969, the Alberta government finally granted Syncrude limited approval and a construction start date of 1973.
Newell said Pew's influence was still being felt at the time. Pew had committed $250 million of Sun Oil's money to GCOS in the early 1960s and swallowed hard every time the board of directors didn't like the look of the bottom line.
"They just took a huge bath in red ink for all that time and Howard Pew said, 'This is a strategic resource, we're going to stay there,' " said Newell. "Syncrude got approved but at very marginal economics. My rhetorical question always was, 'Do you think Syncrude would have been built if Howard Pew had not had the guts to stay in?' He was hugely committed. I think the Syncrude owners deserve a lot of credit, but certainly Howard Pew is one of the industry heroes."
On an oilsands timeline that encompasses 150-odd years, the '60s and '70s were but a blip --- an important and busy time to be sure, but merely part of the story sandwiched between its early beginnings and more recent technological breakthroughs.
Oilsands history, like the resource itself, is more readily identifiable when separated into distinct parts. While Newell prefers to view it in terms of key happenings --- including the passing of the Natural Resources Transfer Act in 1930, world oil shortages of the 1970s and the National Oil Sands Task Force work in the 1990s --- McClements sees three distinct eras: bitumen, refining and in situ.
"If you can think of it in those three eras, then it's easier to talk about the history, who played a role, and what were the significant elements in it," McClements, 85, said by phone in May from his home in Florida.
"There was a clearly defined period of producing bitumen by these rugged individuals and smart research scientists who produced bitumen and were able to sell it. But it cost more to produce than what was made (from selling it)."
He was talking about the likes of Ball, Fitzsimmons, Clark, Ells and Blair, all of whom were active in a variety of roles in the oilsands in the 1910s and '20s, before the Dominion of Canada passed the Natural Resources Transfer Act that gave control of the resource to the provincial government. Ells was the Dominion's representative on the ground, sent from Ottawa more than once to survey large chunks of the oilsands region, which at the time was thought to hold vast pools of oil that could be tapped through conventional drilling methods.
Clark and Blair were a formidable research duo in Edmonton and on the ground up north, and are credited with improving upon the hot water separation process, for which they were awarded a patent in the late 1920s. They processed bitumen at a pilot plant in the basement of a University of Alberta building. But hot water had already been used on oilsands for decades.
"If you try to pick an incident that initiated the bitumen era, you could go back to the late 1800s, 1870, when a guy by the name of (Henry 'John' Moberly) set up a trading post for the Hudsons Bay Co. at the mouth of the Clearwater and the Athabasca Rivers," said McClements. "What he did then was, he took a pot of hot water, probably fired by wood, and stirred into it and made a slurry out of tarsands. He probably had to stir it only for a few minutes and allow it to settle. A gravity separation took place, the sand fell to the bottom and the bitumen rose to the surface.
"One hundred years, plus or minus, later, at the Great Canadian Oil Sands Plant, we did exactly the same thing. The basic process did not change in 100 years."
But development of the oilsands was nonetheless propelled into the major leagues by Shell, Syncrude and Sun Oil through the 1960s and 1970s. Their executives assured Alberta politicians that oilsands production would mushroom to 50,000 barrels per day at the GCOS and 100,000 bpd at Syncrude and Shell operations. It signalled a seismic shift in scale.
"The next era was the refining era, where the large international oil companies brought the money, brought the expertise, brought the market, and developed, demonstrated and built, and are continuing to build, the refining of that heavy bitumen," said McClements.
"What they were proposing was just such a mind-boggling difference to what had taken place in the previous hundred years. What they had the ability, finances and technology to do, was take the bitumen that many people had produced (but actually was worthless, because it had no value in the marketplace) ... they were able to take that bitumen and turn it into products that you could heat your house with, operate your car with. They were able to refine it into saleable, high-quality products."
It wasn't smooth sailing through the 1980s and into the 1990s, however. The major oilsands players struggled with production issues. The price of crude, held to the teens and low $20s per barrel after the shortage of the early 1980s abated, was debilitating.
"For twenty-five years, the GCOS oilsands project had all the appearance and performance of a massive white elephant," George wrote in Sun Rise. "By 1990, the brilliant vision of J. Howard Pew had deteriorated into an apparently bottomless pit of losses resulting from production costs that often exceeded the market price of the oil."
Newell said Canada had basically forgotten about the oilsands again in the early 1990s. He recalled speaking to newspaper editorial boards and government officials in the East who were surprised to learn that Syncrude was in production.
"I used to joke that I was CEO of the best kept secret in Canada."
The industry needed to make changes, and the National Oil Sands Task Force was born in 1993, bringing together 35 government and industry organizations and 70 people, primarily to hammer out a royalty regime.
"We said, look, governments can no longer afford handouts, investors have to be able to get a good return, so here is what we need to do: reduce the up-front risk to investors in return for a fair share of the profits upon completion of the capital project."
Newell said they sold a vision of jobs and royalties, then needed to deliver. They cut costs, improved production processes and margins. Those reformative days called for a major rethink of their clunky technology, away from bucket wheels and conveyor belts that were constantly breaking down.
"Bucket wheels, and in particular Suncor bucket wheels, were ideal proof of a rule that every engineer understands instinctively: the more complex a piece of mechanical equipment, the greater the probability of its breaking down," George wrote in his book.
The 1,600-tonne, 10-storey-tall machines were built to mine coal, not the harder oilsands. And they certainly weren't meant for the frigid temperatures of northern Alberta. George wrote that three bucket wheels were in operation at Suncor when he arrived in 1991, and constant mechanical failure meant downtime averaged almost 50 per cent each year.
"I was convinced that replacing the bucket wheels with a more reliable system would produce an immediate leap in productivity. I also knew that buying the new equipment would require a major and unbudgeted capital investment, necessitating approval from a head office that considered spending money on the oilsands like tossing cash into a deep, dark hole."
He envisioned, and eventually procured, a fleet of heavy haul trucks and power shovels, the first generation of machines still in use. The cost was enormous, at $120 million. But it was money well spent.
"By 1997, we were settled in Calgary, and the move to trucks and shovels at the oilsands, along with installation of a new vacuum tower to expand our upgrading capacity, was paying dividends. After years of fires, mechanical breakdowns and multiple losses, Suncor was on solid ground financially."
Syncrude also made technological leaps of faith, not only with trucks from Carterpillar and Komatsu and hydraulic and electric shovels, but with game-changing hydro-transport that moved bitumen from mine to upgrader by pipeline.
"As long as you pump it over a kilometre or more, you get enough mechanical energy put in through the mixing to break the bond (between bitumen and sand), so that you can go into the primary separation vessels. That enabled us to get away from conveyor belts and all that," said Newell.
They were able to pump bitumen from their Aurora operation, 35 kilometres north of Fort McMurray, to the Syncrude plant.
"The magic there is you can go where the best bitumen is, the thinnest overburden and richest ore, so that's a big plus, and you can keep the major part of your capital investment in the upgrader," said Newell.
According to 2011 estimates, Alberta's proven or accessible oilsands reserves, that is to say those within 75 metres of the surface, amount to 168 billion barrels, and 80 per cent will be developed in situ, mainly through steam assisted gravity drainage (SAGD), while only 20 per cent will come from surface mining.
"Now we're in the in-situ era, and that has a history all its own," said McClements.
That history was championed by Roger Butler, the so-called father of SAGD. He discovered and patented the process for Imperial Oil and often lamented that the company did not take full advantage.
"When he first proposed the SAGD method in the late 1970s for the recovery of heavy oil and bitumen, he often faced doubt and disbelief about its practicability from colleagues who viewed the idea with amusement," wrote Qi Jiang, a student and colleague of Butler's at the University of Calgary, in endorsing Butler's enshrinement in the Canadian Heavy Oil Association Hall of Fame.
"Roger persisted until his theoretical prediction of the commercial SAGD rates was verified at the Underground Test Facility in the late 1980s. And to date, billions of barrels of bitumen have been produced from a number of commercial SAGD projects by drilling two horizontal wells in close proximity to one another, injecting steam into the upper well and collecting oil in the lower one," wrote Jiang.
The technology is readily available to smaller oilsands players who produce modest output of 10,000 to 15,000 barrels per day. Modest by today's megaproject standards anyway. But light years removed from the 350 bpd pilot plants that spawned this mammoth enterprise in the early part of the last century.
"We're not a mature industry," said Newell, looking back on 150 years of oilsands history. "We're still by comparison very young. The advantage to that is that there are technology breakthroughs to be made. It was technology that got us to where we are today. It will be technology that gets us to where we need to be tomorrow."


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September 20, 2013
In the "good old days" (that weren't really that good), a project started with laying out a whole system with EPROM, a clock generator, and I/O devices.
I used to love going into bookstores. Now that I can read all I want on my computer or tablet, it isn't as much fun (unless it is full of old books). Computer stores are even worse. Years ago there was always something I wanted to upgrade my PC. Today, there are two forces at work against that. First, most of the hardware I have is sufficiently powerful that I don't really need anything else. Also, all the little simple upgrades you used to buy are now on the motherboard — soundcards, network adapters, even video cards (although most motherboard video cards aren't up to the high-end standalone cards).
The same thing has been happening in the embedded space. In the "good old days" (that weren't really that good), a project started with laying out a whole system with EPROM, a clock generator, and I/O devices. Microcontrollers appeared, integrating most of this on a chip, leading to System on Chip (SoC) designs that have nearly everything you need in one bundle.
In the PC world, something new will come along (say, USB3 or gigabit Ethernet) and will spur demand for add-on cards. Soon, all the motherboards will have the new interface, and the market for additional cards diminish. The same thing happens with CPU vendors. Newer chips integrate more features (like USB or Ethernet), reducing the demand for external components.
One byproduct of this is that it gets easier and cheaper to roll up development boards or simple one-off designs. For example, the McHck purports to be a $5 ARM development board. If you look at the schematics, it is little more than an ARM chip, a handful of passive components, and pads for optional devices. The chip does all the basic work.
There are many plans for "basic" Arduino circuits as well. These usually take some RS232 or USB to TTL adapter as a temporary "programmer" that you remove before deploying the circuit. If you omit the adapter, it is little more than an Atmel chip, a crystal, and a handful of simple components.
What always surprises me is that you don't see too many boards (although there are some) that attempt to integrate things that you don't find on the chip. For example, digital outputs that can handle higher loads, analog front ends, and isolated higher voltage digital inputs. You do see some specialty boards for very specific purposes. For example, the Printrboard is an Arduino with specific interfaces for 3D printing (e.g., stepper motor controllers).
Where does it end? Do we wind up with one or two "do it all" processors that have everything but the kitchen sink included? Or will the market morph to a configurable landscape where you pick and choose the pieces you want in your system dynamically (think Cypress PSoC or Xilinx)? Leave a comment and share your thoughts.


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mac5155 wrote:Is the new Flow version in the play store or what? I am pretty sure i'm a registered user and cant find it.
its still in beta form and offered through thier website only, I think you have to register on their VIP forum, I got an email about it yesterday