Actual finance blog

If Mitt Romney is elected president, he will have to make some tough choices about what to do with his personal fortune.

In order to avoid conflicts of interest and satisfy ethics watchdogs, soon-to-be presidents often sell assets or relinquish control of their investments to a trustee.

Romney, who has spent the better part of a month answering questions about his massive investment portfolio, would be one of the wealthiest presidents in history.

The former Massachusetts governor has a few options.

He could put his investments in a government-approved blind trust, convert some or all of his assets to cash, or possibly take advantage of an obscure tax break for executive branch officials.

Blind trust: Romney is no stranger to the concept of blind trusts.

After becoming governor of Massachusetts, Romney created a trust managed by Boston lawyer Bradford Malt. That’s where most of his assets, estimated to be between $85 and $264 million, are today.

But between federally required disclosure forms and the tax returns released by his campaign, the contents of Romney’s trust are easily accessible and have been widely scrutinized by the media.

It’s now far from blind.

As president, Romney would likely have to dissolve his current trust and create a new one. And this one, approved by the Office of Government Ethics, would require a truly independent trustee.

"Federal ethics guidelines for blind trusts are extremely strict," said Robert Kelner, a partner at Covington & Burling who has advised candidates and appointees on ethics. "Typically they are much stricter than what you find at the state level."

Rich, Gingrich and crazy rich

If Romney establishes a new trust, his communication with the trustee would be extremely limited, and he would not be informed of changes to his portfolio.

"He might learn the overall performance of his portfolio," Kelner said. "But he would not know anything about its particular holdings."

It’s a popular tactic.

Bill Clinton, both Bushes and Ronald Reagan put their money into a blind trust.

President George W. Bush told CNN at the end of his second term that he had "no earthly idea" what had become of his assets.

"I met the trustees eight years ago and I haven’t talked to them since," Bush said.

Unlike his immediate predecessors, Barack Obama does not have a government-approved blind trust.

Most of his assets are invested in U.S. Treasury bonds and bills, mutual funds and education savings plans for his children — hardly the kind of assets that present conflicts of interest.

Establishing blind trusts is not just popular with presidents. Other wealthy executive branch appointees have followed suit — sometimes with a little unease. Hank Paulson, who left the top job at Goldman Sachs to become Treasury Secretary, was one of them.

"Have you heard the joke, how do you make a small fortune?" Paulson quipped in 2009. "Give a large fortune to someone in a blind trust."

For Romney, who made his money by making savvy investments, relinquishing control might be particularly difficult.

"You’re turning your assets over to someone who is essentially a stranger," said Kenneth Gross, a partner at Skadden Arps Slate Meagher & Flom. "I think some people would not be entirely happy with that situation."

The Romney campaign would not elaborate on the candidate’s plans for his wealth, but said in a statement that his "assets will be arranged in a manner that comports with all rules" should he become president.

Move to cash: Perhaps the simplest option would be for Romney to liquidate his holdings.

The Clintons converted their assets to cash in June 2007 as Hillary’s campaign for president entered its final stretch, according to the New York Times.

The family’s holdings had been in a blind trust, but — like Romney — those assets were disclosed in campaign filings required by the Federal Election Commission.

Instead of creating a new blind trust, the Clintons chose to liquidate.

Romney made $42.7 million in 2 years

There is a substantial downside to taking this route. The Clinton’s likely owed huge sums of money in capital gains.

A fire sale of Romney’s assets would likely create a similar tax burden.

It’s also possible Romney could choose to divest — or sell — a targeted group of assets that are likely to cause conflicts.

But that would be difficult considering the breadth of decisions the president makes, and the vast diversification of Romney’s holdings.

"Practically everything the president does could affect individual companies," Kelner said. "Romney might find that difficult to do."

A tax benefit? Members of the executive branch who have to sell specific assets to avoid conflicts of interest are sometimes granted what is called a "certificate of divestiture" by the Office of Government Ethics.

Obtaining the certificate allows appointees to divest while deferring the payment of capital gains, provided they invest the proceeds in an approved asset like a diversified mutual fund or government bond.

The provision is designed to incentivize wealthy individuals to accept posts in the executive branch without forcing them to take a tax hit.

A president has never applied for the tax break, but law experts consulted by CNNMoney said it is conceivable the Office of Government Ethics would grant one to a president with a portfolio like Romney’s.

"It would be unprecedented," Gross said. "But I don’t know why a president wouldn’t be entitled to the same deferral of tax if he felt there was a conflict."

The tax benefit for Romney would be huge.

"Oh my god," said Robert Willens, a tax expert and professor at Columbia Business School. "He’d be right in the sweet spot. This would save him millions or tens of millions." 

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The U.S. economy is growing at 2-3 percent but still faces big challenges to repair damage wrought by the financial crisis, Treasury Secretary Timothy Geithner said on Friday.

“I think if you look at the Fed’s forecast and the consensus of private forecasters, people are pretty clustered in that area but it is still dependent how the world unfolds. We’re still repairing the damage done by the financial crisis,” Geithner told the World Economic Forum.

“On top of that we face a more challenging world. We have a lot of challenges ahead in the United States.”

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Greece’s prime minister will hold new talks with representatives of the country’s private sector creditors on a crucial euro100 billion ($129 billion) debt writedown.

Lucas Papademos will meet late Thursday with Charles Dallara, managing director of the Institute of International Finance, a banking lobby, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas.

Greece is hoping to conclude the negotiations by the end of this week, despite disagreements over the terms of the deal.

An IIF statement Wednesday said the goal is to agree on all outstanding legal and technical issues as soon as possible.

The private debt writedown is a vital part of a new bailout for Greece, which has been surviving on international rescue loans since May 2010.

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President Barack Obama planted his political flag in Florida on Thursday ahead of the state’s Jan. 31 Republican presidential primary, promising a fresh boost to the economy by making it easier for foreign tourists to travel to the U.S.

Obama sought his piece of Florida’s political spotlight with a high-profile appearance at Walt Disney World, where he announced initiatives aimed at making it easier for citizens of China and Brazil to visit the United States.

“America is open for business,” Obama declared against the backdrop of Disney’s Cinderella castle and picture-perfect blue skies. “We want to welcome you.”

From Florida, Obama headed to New York City for four glitzy campaign fundraisers, including an event at the famed Apollo Theater featuring performances by Al Green and India.Arie. Tickets to that fundraiser start at $100.

The president also was to attend a $35,800 per ticket fundraiser at the home of film director Spike Lee, and two small fundraisers at Daniel, an exclusive Manhattan restaurant. Tickets start at $5,000 for the first restaurant fundraiser and $15,000 for the second. Obama raised more than $220 million for his campaign and the Democratic National Committee through the end of 2011.

Beyond offering an opportunity to talk about the economy, Obama’s trip to Florida marked an attempt by the White House and his campaign to steal attention from Republicans vying for the GOP presidential nomination. In recent weeks Obama held a live video conference with Iowa voters during the Republican caucus, Vice President Joe Biden held a similar event with voters in New Hampshire on the night of the state’s first-in-the-nation primary and next week Obama will travel to Nevada, which follows Florida on the primary calendar.

Obama was greeted in the Orlando area by ads from GOP frontrunner Mitt Romney blaming the president for the state’s struggling economy. Romney, the former Massachusetts governor, could take a major step toward securing the Republican nomination with a win in Florida’s Jan. 31 primary contest.

“I have a simple question for you: Where are the jobs?” Romney wrote in an open letter to the president on Thursday running as an ad in the Tampa Bay Times. In a conference call with reporters, Romney said Obama was “speaking from Fantasyland.”

While Obama carried Florida in 2008, the state is a top target for Republicans in the November elections. Florida twice backed Republican George W. Bush, providing the decisive electoral votes in the cliffhanger 2000 election that was decided after a 36-day recount payday loan lenders.

Tourism is a key component to the economy in Florida, which has been battered by 10 percent unemployment and rampant home foreclosures.

The White House said more than 1 million U.S. jobs could be created over the next decade, according to industry projections, if the U.S. increases its share of the international travel market.

The tourism initiative is part of an executive order Obama signed. Its goal is to boost nonimmigrant visa processing capacity in China and Brazil by 40 percent this year; expand a Visa Waiver Program that allows participating nationals to travel to the U.S. for stays of 90 days or less without a visa; appoint a new group of chief executives to the U.S. Travel and Tourism Advisory Board; and direct an interagency task force to develop recommendations for a National Travel and Tourism Strategy, including promoting national parks and other sites.

The efforts to boost tourism were praised by travel and tourism groups, but one lawmaker said the decision to relax tourist visas could undermine national security. Sen. Charles Grassley, R-Iowa, said the administration was “pushing the envelope and using their authority beyond congressional intent,” noting that only two of the 19 hijackers in the 9/11 terrorist attacks were interviewed by consular offices. He said Congress moved to require visa applicants to be interviewed as a result.

The White House says the travel and tourism industry represented 2.7 percent of gross domestic product and 7.5 million jobs in 2010. But the U.S. share of spending by international travelers fell from 17 percent to 11 percent between 2000 and 2010, due to increased competition and changes in global development, as well as security measures imposed after Sept. 11, 2001, according to the White House.

The approach was welcomed by Brazilian tourists Lilian Lara and Lindbergh Souza, who shopped along the resort’s streets hours before the president’s speech. Souza said the visa process was expensive, at $500, and time-consuming for Brazilians who don’t live close to consuls in Rio de Janiero and Sao Paulo. “The whole process took me six months,” Souza said.

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Associated Press writer Mike Schneider contributed to this report.

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President Barack Obama

Stock prices are being increasingly influenced by the trading of exchange-traded funds, with real estate investment trusts as well as energy and consumer companies most affected, according to a Goldman Sachs Group Inc. study.

REITs and energy companies accounted for eight of the top 10 firms in the Standard & Poor’s 500 Index whose trading volume was most driven by trading in ETFs, Robert Boroujerdi, a Goldman Sachs analyst, and three colleagues wrote in a paper released Friday.

Consumer retailers accounted for the five most affected companies in the Russell 2000 Index, which tracks small-capitalization stocks.

ETFs bundle together investments in a particular market index, such as the S&P 500. Unlike mutual funds, they can be traded during daily sessions just like stocks.

They have come under increased scrutiny over whether their trading has increased market volatility and correlation between individual stocks business card. The growing impact of ETF trading on the price movements of individual stocks has discouraged some companies from publicly listing ETFs.

Correlation between the share prices of companies within the same industry groups has increased as ETF assets and trading volume have soared, the study said. Higher correlations indicate that stock prices are rising or falling in tandem.

The Goldman Sachs analysts also estimated the impact of ETFs on the trading volume of individual stocks. Smaller companies were more affected. Among companies belonging to the Russell 2000 small cap index, three had more than 60 percent of their volume driven by ETF trading., led by Houston-based retailer Stage Stores Inc. at 66 percent.

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Prime Minister Mario Monti is prescribing more

Italy’s borrowing costs fell for a second day Thursday but the country’s new premier said his government has more to do before it convinces financial markets it can manage the heavy debts that have made it the focus of the eurozone crisis.

Mario Monti said he was encouraged by bond auctions at which interest costs demanded by bond investors eased. He said his government of technocrats, in office for just a month and a half following the resignation of Silvio Berlusconi, was preparing a package of measures to get the Italian economy moving again, including efforts to boost competition and liberalize the labor market.

“We absolutely don’t consider the market turbulence to be over,” he said at a news conference after the Italian treasury tapped investors for around euro7 billion ($9.2 billion).

The most keenly awaited result from Thursday’s batch of auctions was the euro2.5 billion ($3.3 billion) sale of ten-year bonds at an average yield of 6.98 percent.

That’s lower than the record 7.56 percent it had to pay at an equivalent auction last month, when investor concerns over the ability of the country to service its massive debts became particularly acute.

However, the country’s borrowing rate on the key 10-year bond remains uncomfortably close to the 7 percent level widely considered to be unsustainable in the long run. Greece, Ireland and Portugal all had to request financial bailouts after their 10-year bond yields pushed above 7 percent. In the secondary markets, Italy’s yield continues to hover around the 7 percent mark.

The 17 countries that use the euro are struggling with a crisis over heavy levels of government debt in several countries. Fears of default on those debts mean that bond investors demand ever higher interest. If a country can no longer borrow affordably to pay off bonds that are maturing, it winds up needing a bailout or defaulting.

Markets had grown fearful over the past few months over Italy’s massive debt burden of euro1.9 trillion ($2.5 trillion). Next year alone, the eurozone’s third largest economy has some euro330 billion ($431 bill.

That means Italy has far to go before it convinces markets it will avoid a disastrous default that could cause another banking crisis and sink the European and global economies.

Italy also sold euro2.54 billion ($3.3 billion) of 3 year bonds at an average interest rate of 5.62 percent, far lower than the 7.89 percent rate it had to pay last month. It also raised euro803 million ($1.05 billion) in the 7-year auction at a rate of 7.42 percent and euro1.18 billion ($1.54 billion) in nine-year bonds at a yield of 6.7 percent.

Thursday’s results come a day after Italy raised euro10.7 billion ($14 billion) in a pair of auctions, again at sharply lower rates than those it was forced to pay just a month ago.

The sharp decline in Italy’s borrowing costs over the past couple of days suggests that commercial banks from the 17 countries that use the euro may have diverted some money they tapped from emergency loans from the European Central Bank last week to buy the bonds of heavily indebted governments.

It may also suggest rising investor confidence in Italy’s recent efforts to reduce its long-term debt through tax increases, pension changes and spending cuts.

Monti’s technocratic government got parliamentary approval last week for more spending cuts and tax increases intended to save the country from financial disaster. One of the most controversial aspects of the austerity package is reform of Italy’s bloated pension system.

Economists say the long term problem is the country’s weak growth, since stronger growth both increases tax revenues and shrinks the size of debt relative to the economy. European Central Bank head Mario Draghi has said Italy must undertake deeper economic reforms to improve its economic performance.

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Canadian Gold and iron producer Eldorado Gold Corp. said Sunday it will buy European Goldfields Ltd. in a deal worth about $2.4 billion, increasing its ability to produce gold.

The Vancouver, British Columbia, company said its offer values each European Goldfields share at 13.08 Canadian dollars ($12.59), based on Eldorado’s closing stock price on the Toronto Stock Exchange Friday.

That comes to 2.5 billion Canadian dollars. It’s a 10 percent premium to European Goldfields’ closing price on the Toronto Stock Exchange Friday.

Eldorado said the deal will create a company with a market capitalization of about 11 billion Canadian dollars ($10.59 billion) and help diversify production. It expects to increase annual production to reach more than 1.5 million ounces of gold by 2015. In October, the company said it expected to produce 650,000 ounces of gold this year.

Eldorado operates in China, Turkey, Brazil and Greece. It has six active mines and other projects in development.

European Goldfields, which is based in Whitehorse, Yukon, operates a mine in Greece and is developing projects in both Greece and Romania pay day loans. It said it has gold reserves of 10 million ounces within the European Union. It is also a partner of Aktor SA, the largest construction company in Greece.

“Integration of European Goldfields’ business with our own will provide Eldorado with the dominant gold mining business in the Aegean Region,” said Eldorado CEO Paul Wright in a statement Sunday. He added that European Goldfields’ partnership with Aktor will help the combined company safely develop operations in Greece.

Under the deal proposed Sunday, European Goldfields stockholders will receive 0.85 Eldorado share and a fraction of a Canadian cent for each European Goldfields share.

The acquisition requires approval from a majority of Eldorado shareholders and two-thirds of European Goldfields shareholders. Shareholders from both companies will meet in February to vote on the deal.

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