Senate approves "fiscal cliff" deal, crisis eased

 The Senate moved the U.S. economy back from the edge of a "fiscal cliff" on Tuesday, voting to avoid imminent tax hikes and spending cuts in a bipartisan deal that could still face stiff challenges in the House of Representatives.
In a rare New Year's session at around 2 a.m. EST (0700 GMT), senators voted 89-8 to raise some taxes on the wealthy while making permanent low tax rates on the middle class that have been in place for a decade.
But the measure did little to rein in huge annual budget deficits that have helped push the U.S. debt to $16.4 trillion.
The agreement came too late for Congress to meet its own deadline of New Year's Eve for passing laws to halt $600 billion in tax hikes and spending cuts which strictly speaking came into force on Tuesday.
But with the New Year's Day holiday, there was no real world impact and Congress still had time to draw up legislation, approve it and backdate it to avoid the harsh fiscal measures.
That will need the backing of the House where many of the Republicans who control the chamber complain that President Barack Obama has shown little interest in cutting government spending and is too concerned with raising taxes.
All eyes are now on the House which is to hold a session on Tuesday starting at noon (1700 GMT).
Obama called for the House to act quickly and follow the Senate's lead.
"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," he said in a statement.
"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans," Obama said.
Members were thankful that financial markets were closed, giving them a second chance to return to try to head off the fiscal cliff.
But if lawmakers cannot pass legislation in the coming days, markets are likely to turn sour. The U.S. economy, still recovering from the 2008/2009 downturn, could stall again if Congress fails to fix the budget mess.
"If we do nothing, the threat of a recession is very real. Passing this agreement does not mean negotiations halt, far from it. We can all agree there is more work to be done," Majority Leader Harry Reid, a Democrat, told the Senate floor.
A new, informal deadline for Congress to legislate is now Wednesday when the current body expires and it is replaced by a new Congress chosen at last November's election.
The Senate bill, worked out after long negotiations on New Year's Eve between Vice President Joe Biden and Senate Republican Minority Leader Mitch McConnell, also postpones for two months a $109 billion "sequester" of sweeping spending cuts on military and domestic programs.
It extends unemployment insurance to 2 million people for a year and makes permanent the alternative minimum tax "patch" that was set to expire, protecting middle-income Americans from being taxed as if they were rich.
'IMPERFECT SOLUTION'
The tax hikes do not sit easy with Republicans but conservative senators held their noses and voted to raise rates for the rich because not to do so would have meant increases for almost all working Americans.
"It took an imperfect solution to prevent our constituents from a very real financial pain, but in my view, it was worth the effort," McConnell said.
House Speaker John Boehner - the top Republican in Congress - said the House would consider the Senate deal. But he left open the possibility of the House amending the Senate bill, which would spark another round of legislating.
"The House will honor its commitment to consider the Senate agreement if it is passed. Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members ... have been able to review the legislation," Boehner and other House Republican leaders said in a statement.
Boehner has struggled for two years to get control over a group of several dozen Tea Party fiscal conservatives in his caucus who strongly oppose tax increases and demand that he force Obama to make savings in the Medicare and Social Security healthcare and retirement programs.
A campaign-style event held by Obama in the White House as negotiations with Senate leaders were taking place on Monday may have made it more difficult for Republicans to back the deal. In remarks to a group of supporters that resembled a victory lap, the president noted that his rivals were coming around to his way of seeing things.
"Keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously, the agreement that's currently being discussed would raise those rates and raise them permanently," he said to applause before the Senate deal was sealed.
Obama's words and tone annoyed Republican lawmakers who seemed to feel that the Democrat was gloating.
"That's not the way presidents should lead," said Republican Senator John McCain, Obama's rival in the 2008 election.
A deal with the House on Tuesday, while uncertain, would not mark the end of congressional budget fights. The "sequester" spending cuts will come up again in February as will the contentious "debt ceiling," which caps how much debt the federal government can hold.
Republicans may see those two issues as their best chance to try to rein in government spending and clip Obama's wings at the start of his second term.

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Political brinksmanship still threatens US economy

Even if U.S. lawmakers prevent the worst of the so-called fiscal cliff, the brinksmanship in Washington over taxes and spending is likely to continue damaging the fragile economy well into 2013.
A months-long political standoff over fiscal policy has already taken its toll, adding uncertainty that has discouraged consumers from spending and businesses from hiring and investing.
The squabbling seems sure to persist even if the House of Representatives goes along with a partial fix passed by the Senate in the early hours of Jan. 1. Under that plan, taxes will rise on individual incomes over $400,000 and household incomes over $450,000 and on the portion of estates that exceeds $5 million. The House is expected to vote Tuesday or Wednesday.
But lawmakers appear to have postponed tough decisions on government spending, giving themselves a reprieve from cuts that were scheduled to begin taking effect automatically Jan. 1. That just sets the stage for more hard-bargaining later.
And another standoff is likely to arrive as early as February when Congress will need to raise the $16.4 trillion federal borrowing limit so the government can keep paying its bills. House Republicans probably won't agree to raise the debt limit without offsetting spending cuts that Democrats are sure to resist.
"Even if they cut some small deal, the process and what is left undone still means there's a lot of uncertainty," says Stuart Hoffman, chief economist at PNC Financial Services Group.
After Jan. 1, asks Ethan Harris, co-head of global economics at Bank of America Merrill Lynch, "what induces the two sides to stop fighting and start compromising? ... We're kind of in the first act of a three-act play," Harris says. "One of the key messages from the cliff is that this stuff just doesn't get resolved quickly."
The fiscal cliff itself was created to force Democrats and Republicans to compromise.
To end a 2011 standoff over raising the federal debt limit, they agreed to a Jan. 1, 2013 deadline to reach a deal over taxes and spending. If they didn't, more than $500 billion in 2013 tax increases would begin to take effect, along with $109 billion in cuts from the military and domestic spending programs. The sharp tax hikes and spending cut would threaten to send the economy over the cliff and back into recession.
But negotiations to avert catastrophe have highlighted once again how far apart the two parties are on taxes (Republicans don't want to raise them) and spending (Democrats are reluctant to cut government programs).
"We're learning about how deep the impasse is," Harris says. "Both sides have decided that they were willing to go to the last minute."
Political gridlock has been rattling financial markets and shaking consumer and business confidence the past two years.
After a fight over raising the debt limit last year, the credit rating agency Standard & Poor's yanked the U.S. government's blue-chip AAA bond rating because it feared that America's dysfunctional political system couldn't deliver a credible plan to reduce the federal government's debt. S&P cited an overabundance of "political brinksmanship" and warned that "the differences between political parties have proven to be extraordinarily difficult to bridge."
The Dow Jones industrials dropped 635 points in panicked selling the first day of trading after the S&P announcement.
Harris contrasted the latest budget brawls with previous budget agreements in the 1980s and 1990s. Those deals generally included deficit cuts that were spread out over time and were sometimes bipartisan.
That's better for business and consumer confidence than the repeated partisan standoffs and threats of sudden tax hikes and spending cuts that Congress now engages in.
"The process matters almost as much as what they actually do," Harris says.
Outside Washington, the economy has been getting some good news. Europe's financial crisis appears to have eased, reducing the threat of a renewed financial crisis. And the U.S. real estate market finally appears to be recovering from the housing bust.
But the old worries have been replaced by new ones about political gridlock, says Joseph LaVorgna, an economist at Deutsche Bank.
The partisan divide has left businesses and consumers wondering what's going to happen to their taxes and to federal contracts.
Companies have plenty of cash. But they reduced spending on industrial equipment, computers and software from July to September, the first quarterly drop since mid-2009 when the economy was still in recession. And hiring has been stuck at a modest level of about 150,000 new jobs per month this year.
"What we see is fear," says Darin Harris, chief operating for Primrose Schools, an Atlanta company with 250 franchised preschools in 17 states. He says franchise owners have been reluctant to invest in a second or third school until they know what tax rates are going to be and where government spending is headed. "All those things make our small business owners reluctant to reinvest."
Consumer confidence fell in December for the second straight month, according to a survey by the Conference Board, which blamed the drop on worries about the fiscal cliff. The uncertainty is also believed to have dinged holiday shopping, which grew at the slowest pace this year since 2008.
"Every kind of brinksmanship moment is a reminder to people to not trust the economy," Harris says.

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US may skirt 'fiscal cliff' but faces higher taxes

A last-ditch tax deal in the Senate might let the U.S. economy escape the worst of the so-called fiscal cliff and avoid going back into recession. But even if the House goes along, the tax increases likely coming in 2013 will dent economic growth anyway.
In the early hours of the new year, the Senate voted to end a long stalemate and raise taxes on upper-income households, extend long-term unemployment benefits and postpone decisions over government spending cuts, officials said. But any deal needs approval from the House.
About $536 billion in 2013 tax increases were scheduled to take effect Jan. 1, along with $109 billion in cuts from military and domestic-spending programs, if Democrats and Republicans could not reach agreement.
Mark Vitner, senior economist at Wells Fargo, said he expects budget policy, including the higher taxes in the Senate plan, to shave 0.8 percentage points off economic growth in 2013. The economy doesn't have much growth to give. Vitner predicts it will grow just 1.5 percent in 2013, down from 2.2 percent in 2012.
The biggest hit to the economy is expected to come from the end of a two-year Social Security tax cut. The so-called payroll tax is scheduled to bounce back up to 6.2 percent from 4.2 percent in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year.
"Even with this deal, fiscal policy will still be a net drag on economic growth," Vitner said. "The expiration of the payroll tax holiday will reduce after-tax income for all workers and hit lower to middle income families the hardest."
Mark Zandi, chief economist at Moody's Analytics, calculates that the higher payroll tax will reduce economic growth by 0.6 percentage points in 2013. The other possible tax increases — including higher taxes on household incomes above $450,000 a year — will slice just 0.15 percentage points off annual growth, Zandi says.

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Twitter and Nielsen pair up to publish new "social TV" ratings

- Nielsen Holdings NV, the television viewership measurement company, said on Monday it will partner with Twitter to publish a new set of ratings that measure chatter on Twitter about TV programming.
The new measurement, dubbed the "Nielsen Twitter TV Rating," seeks to tap into the stream of viewer commentary and armchair musings generated on "second screens" - the smartphones and tablets perched on Twitter users' laps while they watch, say, Monday Night Football or the latest episode of "Homeland" on their TVs.
The new ratings, to be launched next fall, arrive at a moment when media and advertising industry executives say they are observing a shift in TV viewing habits that include the rise of "second screen" use.
But significant questions remain for advertisers over how best to interpret the data and whether a Twitter ratings system is meaningful at all.
In September, Nielsen ratings showed that TV viewership for Viacom Inc's MTV Video Music Awards, which coincided with the Democratic National Convention, plummeted by more than 50 percent from a year ago. Yet social media chatter tripled, according to the research firm Trendrr.
Brad Adgate, an analyst at Horizon Media, said advertisers will view the Twitter ratings as a useful layer of information about a show's popularity, but it is "not going to be close to the currency" of existing ratings metrics.
"It lets producers and creative directors know if the storyline is working, like a huge focus group," Adgate said. "But I don't think you can translate comments to ratings for a show. Right now I think the bark right now is bigger than its bite."
The new ratings will measure the number of people discussing a show on Twitter, as well as those who are exposed to the chatter, to provide the "precise size of the audience and effect of social TV to TV programming," Nielsen said.
"As the experience of TV viewing continues to evolve, our TV partners have consistently asked for one common benchmark from which to measure the engagement of their programming," Chloe Sladden, Twitter's vice president of media, said in a post on the company blog on Monday. "This new metric is intended to answer that request, and to act as a complement and companion to the Nielsen TV rating."
Mark Burnett, executive producer of NBC's hit "The Voice," argued that advertisers should value programs that can attract a high level of social media engagement from viewers. Deeply embedded social media elements, such as live Twitter polls, were critical in driving "The Voice" to the top of the Tuesday night ratings among viewers between 18 to 49, Burnett said.
"If you're an advertiser, wouldn't you want to know whether people are watching this show passively or if they're actively engaged in the viewing experience?" Burnett said. "Five years from now this will make traditional television ratings seem archaic."
For Twitter, the partnership with a recognized measurement company like Nielsen emphatically punctuates a year-long effort by its media division to bring second-screen usage into the mainstream.
Twitter's convergence with television has been on display during sporting and major news events, which have provided some of the biggest viewership moments for both broadcasters and the social media company.
During the Summer Olympics in London, Twitter set up a page for the event that displayed photos from inside an event venue or athletes' tweets to complement what was being broadcast on NBC. Advertisers like Procter & Gamble Co, for instance, which advertised heavily during the Games, tried to bridge the two mediums by airing an ad on TV, then sending out a tweet soliciting viewer feedback about the ad.
As news organizations tallied votes on election night in the United States on November 6, worldwide Twitter chatter hit a peak of more than 327,000 per minute, the company said this month.

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Florida man sentenced to 10 years in "hackerazzi" case

A Florida man who pleaded guilty to hacking into the email accounts of celebrities to gain access to nude photos and private information was sentenced to 10 years in prison by a federal judge in Los Angeles on Monday.
Former office clerk Christopher Chaney, 36, said before the trial that he hacked into the accounts of film star Scarlett Johansson and other celebrities because he was addicted to spying on their personal lives.
Prosecutors said Chaney illegally gained access to email accounts of more than 50 people in the entertainment industry, including Johansson, actress Mila Kunis, and singers Christina Aguilera and Renee Olstead from November 2010 to October 2011.
Chaney, who was initially charged with 28 counts related to hacking, struck a plea deal with prosecutors in March to nine felony counts, including wiretapping and unauthorized access to protected computers.
"I don't know what else to say except I'm sorry," Chaney said during his sentencing. "This will never happen again."
Chaney was ordered to pay $66,179 in restitution to victims.
Prosecutors recommended a 71-month prison for Chaney, who faced a maximum sentence of 60 years.
TEARFUL JOHANSSON
Prosecutors said Chaney leaked some of the private photos to two celebrity gossip websites and a hacker.
Johansson said the photos, which show her topless, were taken for her then-husband, actor Ryan Reynolds.
In a video statement shown in U.S. District Court in Los Angeles, a tearful Johansson said she was "truly humiliated and embarrassed" when the photos appeared online, asking Judge S. James Otero to come down hard on Chaney.
Prosecutors said Chaney also stalked two unnamed Florida women online, one since 1999 when she was 13 years old.
Chaney, a native of Jacksonville, Florida, was arrested in October 2011 after an 11-month FBI investigation dubbed "Operation Hackerazzi" and he continued hacking after investigators initially seized his personal computers.
Shortly after his arrest, Chaney told a Florida television station that his hacking of celebrity email accounts started as curiosity and later he became "addicted."
"I was almost relieved months ago when they came in and took my computer ... because I didn't know how to stop," he said.

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Massachusetts fines Morgan Stanley over Facebook IPO

 Morgan Stanley , the lead underwriter for Facebook Inc's initial public offering, will pay a $5 million fine to Massachusetts for violating securities laws governing how investment research can be distributed.
Massachusetts' top securities regulator, William Galvin, charged on Monday that a top Morgan Stanley banker had improperly coached Facebook on how to disclose sensitive financial information selectively, perpetuating what he calls "an unlevel playing field" between Wall Street and Main Street.
Morgan Stanley has faced criticism since Facebook went public in May for revealing revised earnings and revenue forecasts to select clients before the media company's $16 billion initial public offering.
This is the first time a case stemming from Morgan Stanley's handling of the Facebook offering has been settled.
Facebook had privately told Wall Street research analysts about softer forecasts because of less robust mobile revenues. A top Morgan Stanley banker coached Facebook executives on how to get the message out, Galvin said.
A Morgan Stanley spokeswoman said on Monday the company is "pleased to have reached a settlement" and that it is "committed to robust compliance with both the letter and the spirit of all applicable regulations and laws." The company neither admitted nor denied any wrongdoing.
Galvin, who has been aggressive in policing how research is distributed on Wall Street ever since investment banks reached a global settlement in 2003, said the bank violated that settlement. He fined Citigroup $2 million over similar charges in late October.
"The conduct at Morgan Stanley was more egregious," he said in an interview explaining the amount of the fine. "With it we will get their attention and begin to take steps in restoring some confidence for retail investors to invest."
Galvin also said that his months-long investigation into the Facebook IPO is far from over and that he continues to review the other banks involved. Goldman Sachs and JP Morgan also acted as underwriters. The underwriting fee for all underwriters was reported to be $176 million at the time, or 1.1 percent of the proceeds.
As lead underwriter, Morgan Stanley took in $68 million in fees from the IPO, according to a Thomson Reuters estimate.
Massachusetts did not name the Morgan Stanley banker in its documents but personal information detailed in the matter suggest it is Michael Grimes, a top technology banker who was instrumental in the Facebook IPO.
The report says the unnamed banker joined Morgan Stanley in 1995 and became a managing director in 1998, dates that correlate with Grimes' career at the firm. It also says the banker works in Morgan Stanley's Menlo Park, California, office, where Grimes also works.
Grimes did not immediately respond to a request for comment, and was not accused of any wrongdoing by name.
The state said the banker helped a Facebook executive release new information and then guided the executive on how to speak with Wall Street analysts about it. The banker, Galvin said, rehearsed with Facebook's Treasurer and wrote the bulk of the script Facebook's Treasurer used when calling the research analysts.
A number of Wall Street analysts cut their growth estimates for Facebook in the days before the IPO after the company filed an amended prospectus.
Facebook's treasurer then quickly called a number for Wall Street analysts providing even more information.
The banker "was not allowed to call research analysts himself, so he did everything he could to ensure research analysts received new revenue numbers which they then provided to institutional investors," Galvin said.
Galvin's consent order also says that the banker spoke with company lawyers and then to Facebook's chief financial officer about how to prove an update "without creating the appearance of not providing the underlying trend information to all investors."
The banker and all others involved with the matter at Morgan Stanley are still employed by the company, a person familiar with the matter said.
Retail investors were not given any similar information, Galvin said, saying this case illustrates how institutional investors often have an edge over retail investors.

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ARM security improvement to speed mobile e-commerce

British chip designer ARM Holdings and its partners Gemalto and Giesecke & Devrient have launched a new security standard for smartphones that can speed up e-commerce transactions.
Trustonic, a joint venture between the companies formed in April, said the security standard could be built into every level of a device, from the chip through the operating system to applications.
Ben Cade, Trustonic's chief executive, said it would eliminate the need for third-party devices, like bank card readers and secure ID tags, and enable content to be shared easily between devices.
He said the technology could reduce the time needed for an e-commerce transaction on a smartphone to seven seconds from the two and a half minutes typical today.
"It will enable us to trust our smart connected devices to protect us as they deliver essential services and innovative user experiences," he said.
Security is becoming increasingly important for smartphone users as more operations move from PCs to mobile devices.
Trustonic has signed up partners ranging from chipmakers NVIDIA and Samsung Electronics to payments company Mastercard and content provider 20th Century Fox Home Entertainment, Cade said.

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