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Westlake Legal Group > Regulation and Deregulation of Industry

Fed Is Likely to Leave Rates Alone, and Markets Wonder What’s Next

Westlake Legal Group 11DC-FEDPREVIEW-01-facebookJumbo Fed Is Likely to Leave Rates Alone, and Markets Wonder What’s Next United States Politics and Government United States Economy Regulation and Deregulation of Industry Interest Rates Inflation (Economics) Banking and Financial Institutions

WASHINGTON — The Federal Reserve is expected to leave interest rates unchanged at its final meeting of the year on Wednesday, as officials wait to see how the economy fares after they cut rate three times in 2019.

Fed Chair Jerome H. Powell and his colleagues made an aggressive shift this year. After slowly raising rates between late 2015 and 2018 to keep an expanding economy operating at an even keel, they lowered them between July and October as President Trump’s trade war roiled business confidence and global growth slowed.

Their moves seem to have helped, and growth looks to be on sounder footing. Policymakers have signaled that they will now leave rates unchanged until something causes them to reassess the outlook, a message economists expect the Fed to reaffirm in its post-meeting statement and new economic projections on Wednesday afternoon.

“Markets get, loud and clear, that the Fed feels the current policy rate is appropriate,” said Michelle Girard, chief United States economist for NatWest Markets. Ms. Girard said investors would now be on the lookout “for any sign — for any more information — about what would lead to a change in their thinking.”

Trade remains a critical wild card for the central bank. Mr. Trump’s spat with China and other trading partners continues to stoke business uncertainty and weigh on investment, and while the tensions have shown recent signs of easing, how they will end is anyone’s guess. Barring a last-minute delay, another round of tariffs on Chinese goods is expected to go into effect on Sunday, at which point the United States will have imposed levies on nearly every shoe, laptop and bicycle that America imports from China.

“Policy changes in the speed of a tweet,” said Diane Swonk, chief economist at Grant Thornton. “As good as they feel about things, they also know how fast they can change.”

Incoming economic data has been solid, allowing the Fed to remain patient for now. The job market is expanding, unemployment is at its lowest level in 50 years, and wages are gradually rising, which should fuel consumer spending. The expansion is powering through a record 11th year with steady growth. While factory activity remains subdued and economies abroad are shaky, both have shown improvement over the past month.

At the same time, inflation remains mired below the central bank’s 2 percent target. Without faster price gains, Mr. Powell and his colleagues are in no rush to raise rates to guard against an economic overheating.

“We see a high bar for policy moves in either direction,” economists at Goldman Sachs wrote in a research note previewing the meeting.

Still, the economy’s calm surface conceals longer-term challenges, ones that Mr. Powell could be asked about during his 2:30 p.m. news conference.

Interest rates are set in a range of 1.5 percent to 1.75 percent after the Fed’s three cuts this year, leaving officials with limited room to lower borrowing costs to revive the economy in the next recession. The Fed cut rates by about 5 percentage points — to near zero — to help cushion the blow from the last downturn.

Subdued inflation only exacerbates that lack of room, because the Fed’s policy rate incorporates price changes. Lower inflation means less space to cut.

Officials have spent 2019 carrying out a “framework review,” re-examining the way they approach their inflation target, their tools to combat future economic slumps and their communications practices. Next year will be decision time: The process, which Mr. Powell himself instigated and which Vice Chair Richard Clarida is leading, is expected to wrap up in the summer.

The central bank, before too long, might need to unveil a more permanent fix for an obscure but critical market that has been in turmoil in recent months.

Rates in the repurchase market, which banks and hedge funds use for short-term loans, spiked in mid-September. A confluence of factors — including a corporate tax due date and a raft of Treasury bond issuance — helped to create a cash squeeze, pushing rates as high as 10 percent from around 2 percent normally.

The rupture spilled over to other important money markets, lifting the Fed’s key interest rate briefly above its targeted range. The Federal Reserve Bank of New York intervened for the first time since the financial crisis to smooth things over. It has continued to do so, though officials have made it clear that they do not want to remain active in the market indefinitely.

The Fed’s own policy approach probably contributed to the September issues. The central bank had been gradually shrinking its portfolio of government-backed bonds — swollen by post-recession stimulus programs — until late this summer, draining money from the financial system in the process. As of October, it began to buy Treasury bills again to ensure that there are enough cash holdings at the Fed, or reserves, to keep markets well supplied.

For now, Fed officials will probably signal that they are ready and willing to act to keep money markets under control headed into the end of the year, when banks tend to hoard their reserves for regulatory reasons, potentially pushing repo rates up again.

“I would expect them to effectively say that we’re going to do whatever it takes to make sure that year-end goes smoothly,” said Michael Feroli, chief United States economist at J.P. Morgan.

Political dynamics are also likely to be top-of-mind headed into 2020, even if Mr. Powell and his colleagues would prefer not to talk about them.

Mr. Trump has regularly pressured the central bank to ease monetary policy more aggressively, calling for negative interest rates and labeling Mr. Powell both an “enemy” and a bad golfer over the course of the last 12 months.

The central bank, which is independent of the White House but answers to Congress, has done its best to stay out of the fray. But it could remain in Mr. Trump’s sights as he returns to campaigning, given that he regularly bashed the Fed while on the 2016 campaign trail.

“They’d really love to stay on the sidelines — and stay out of the news — in an election year,” Ms. Swonk said. But if trade conflicts or other risks threaten the economy, the Fed will need to stand ready to move again, political cycle notwithstanding.

“The biggest challenge is to stay on the sidelines, but to also know when that won’t be right.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Plunge in 3 Hong Kong Stocks Offers a Cautionary Tale

Westlake Legal Group merlin_162357051_d152fd38-98e4-46c3-ad1b-611bc0256279-facebookJumbo Plunge in 3 Hong Kong Stocks Offers a Cautionary Tale Stocks and Bonds Short Selling Securities and Futures Commission (Hong Kong) Securities and Commodities Violations Regulation and Deregulation of Industry Politics and Government Hong Kong Exchanges and Clearing Ltd Hong Kong

HONG KONG — Even by the standards of Hong Kong, where the ups and downs of the stock market rival events at the horse track as a spectator sport, three recent flameouts have been spectacular.

A Chinese marble miner named ArtGo plummeted by 98 percent in one day. A Chinese automaker-turned-education-company called China First Capital dropped 78 percent. Another education firm, Virscend, was restrained by comparison, falling 33 percent in one day.

The tumbles over the last two weeks have little to do with the pro-democracy demonstrations that have subsumed Hong Kong for five months and sometimes caused gyrations in the local market. Instead, they point to more persistent problems in the market, which has long been Asia’s financial capital. Regulators let some dubious practices slide. Rules stifle naysayers who might rein in gullible or overly exuberant investors.

As a result, bubbles inflate regularly in Hong Kong, with sometimes alarming speed. Then they pop, often leaving small investors with nothing but air.

Despite the political problems, Hong Kong has thrived at the crossroads between China and the rest of the world. Hong Kong’s stock exchange is the world’s sixth most valuable, according to the World Federation of Exchanges, an industry group. The British lender HSBC, the Chinese internet giant Tencent and a slew of Chinese banks and oil companies have raised hundreds of billions of dollars there. Last Tuesday, Alibaba, the Chinese e-commerce titan, raised more than $11 billion selling shares there.

But critics like David Webb, a longtime Hong Kong shareholder activist, say the local rules keep the market less than healthy.

For example, no disclosure is required when a big investor pledges shares in a company as collateral for a loan. If the loan must suddenly be repaid, the investor may have to sell a lot of shares in a hurry, driving down the price.

Hong Kong takes a dim view of short sellers — investors who bet that stocks will go down. While companies usually hate short sellers, they serve an essential role in heady markets by calling out stocks that may be trading at much higher prices than they should.

Short sellers also create alternatives to simply selling shares and walking away. Somebody who shorts a $40 stock and expects it to fall to $20, for example, is still essentially investing in the stock, albeit at a lower price. Without short selling, an investor who thinks the stock is worth less has no choice but to sell it, which is another way of saying the shares should be worth nothing.

But the Hong Kong authorities consider short sellers too disruptive. They allow investors to bet against only a limited number of companies. They also punish those who aggressively question a company’s numbers. In recent years, Hong Kong officials have reprimanded and fined Moody’s, the ratings firm, and a short seller named Andrew Left, accusing them of inaccuracy in their criticisms. Both have disputed the accusations.

A spokesman for the Hong Kong Stock Exchange’s owner, Hong Kong Exchanges & Clearing, declined to comment. A spokesman for the Securities and Futures Commission, the territory’s top financial regulator, said it “will continue to monitor the market and will not hesitate to use its statutory power to take action against parties involved in market misconduct where appropriate.”

Other factors keep the market frothy. Hong Kong has increasingly lowered barriers for investors in mainland China to cross the border and invest. Even more than in Hong Kong, mainland markets are prone to booms and busts, and some experts say those investors bring some of that volatility with them.

Hong Kong now appears to be alert to problems. The territory’s regulators recently warned listed companies not to mislead investors or include “materially false information regarding their counterparties in a transaction.” It also issued a warning to private investment firms after identifying what the regulator described as “dubious arrangement and transactions,” without offering specifics.

The three stocks that recently fell so precipitously were not flying under the radar. Mr. Webb, the shareholder activist, had placed all three on a long list of Hong Kong “stocks not to own” after questioning their ownership and stock valuation.

“ArtGo should now be renamed ‘ArtGone,’ while Virscend should be renamed ‘Descend’ and China First Capital should be renamed ‘China Lost Capital,’” Mr. Webb said in an interview on Thursday. The companies did not respond to requests for comment.

ArtGo’s stock skyrocketed this year, going from around 6 cents a share in January to almost $2. The company mines marble for tabletops and bathrooms, yet investors appeared to be treating it as more valuable than some of the highest-flying technology stocks in terms of its share price relative to its earnings.

The surge in value opened up ArtGo’s shares to even more investors. It passed a threshold that would allow MSCI, a company that manages stock indexes, to include it in its China Index. Because that index is widely followed by investors, many ordinary people began to add ArtGo shares to their portfolios.

Then, on Nov. 20, MSCI reversed its decision, citing the need for further analysis of ArtGo’s business. Its shares fell 98 percent in response.

Other contenders for the MSCI index have also prompted concerns. An investment company called China Ding Yi Feng Holdings was added by MSCI last year after it soared by nearly 3,000 percent, clearing the MSCI threshold. But by March of this year, it was under investigation by regulators, and its trading was frozen.

The MSCI China Index was introduced in 2018, after much lobbying from the Chinese government to include previously restricted stocks trading in Shenzhen and Shanghai markets. MSCI did not respond to requests for comment.

China First Capital’s plunge occurred last Wednesday. The company said in a filing with the stock exchange that it was not aware of a reason for the movements. But it added that a company controlled by its chairman, Wilson Sea, had sold shares in China First Capital that had been pledged as collateral for a loan agreement.

Wednesday was also the day that shares of Virscend, which is partly owned by China First Capital, took a fall. In China First Capital’s filing, the company said it had sold Virscend shares as part of a collateral agreement.

In its own filing, Virscend said it was unaware of a reason for the drop.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

With Boeing in Cross Hairs, Lion Air Gets a Pass on Poor Safety Record

Westlake Legal Group 00lionair-promises-facebookJumbo With Boeing in Cross Hairs, Lion Air Gets a Pass on Poor Safety Record Regulation and Deregulation of Industry Politics and Government Pilots Lion Air Indonesia Corruption (Institutional) Boeing Company Boeing 737 Max Groundings and Safety Concerns (2019) Aviation Accidents, Safety and Disasters Airlines and Airplanes

When things go wrong, those in power often promise to make it right. But do they? In this series, The Times investigates to see if those promises were kept.

JAKARTA, Indonesia — When Lion Air Flight 610 took off in clear skies a year ago, the 737 jetliner carried with it an anti-stall system designed by Boeing that would propel the plane into a nose-dive minutes after takeoff, killing all 189 aboard.

But the plane was saddled with another safety burden. Flight 610 was operated by Lion Air, a low-cost Indonesian carrier that has benefited from its political connections to become one of the world’s fastest growing airlines, despite a questionable safety record.

While Boeing has faced intense scrutiny after two fatal crashes in less than five months, Lion Air has escaped similar attention, despite obvious failings that contributed to the disaster of Flight 610.

An investigation by The New York Times, based on interviews with dozens of officials and airline employees, including pilots and members of maintenance teams, found that Lion Air has a track record of working its pilots to the point of exhaustion, faking pilot training certification and forcing pilots to fly planes they worried were unsafe, including the plane that crashed.

Despite making vague promises of improvements after last year’s accident, the air carrier has neither fully acknowledged nor expeditiously addressed the concerns that have been raised about its safety practices, both by government investigators and whistle-blowers interviewed by The Times.

“The Boeing issue was an absolute godsend for Lion Air,” said John Goglia, a former member of the United States National Transportation Safety Board and an aviation safety expert. “It means Lion Air doesn’t have to deal with what is clearly failure after failure after failure and make the changes needed.”

Of the nine factors that caused the crash according to the final report issued by the Indonesian National Transportation Safety Committee last month, a fatal Boeing design flaw in an automated system was what captured the world’s attention, especially after the crash of another plane in Ethiopia linked to its anti-stall system.

Although the report documented lapses on Lion Air’s part, like shoddy maintenance and undertrained pilots, examples of Lion Air’s culpability were underplayed when the report was presented, dismaying critics who note that Indonesia, the world’s fourth-most populous country, struggles with endemic corruption.

“You get the sense that the raw data that makes Lion look bad is buried in the report for whatever political reasons,” Mr. Goglia said.

And Lion Air has not accepted responsibility for the failures listed in the report, and it dismissed most of the safety issues raised to The Times by current and former employees.

In a response attached to the final report, the airline wrote that it was “aware of efforts that have been made to criticize the Lion Air pilots, engineers and maintenance personnel who operated or worked” on the aircraft.

The carrier said “such criticisms are misplaced and should not be considered as contributing factors of the Flight JT610 accident.”

Despite the life-or-death urgency of some of the government report’s safety recommendations, including making improvements to Lion’s hazard-reporting process and its safety training, the company seems to be mulling its next steps, rather than taking immediate, decisive action.

“Give me time,” Daniel Putut, Lion Air’s managing director, said in an interview, when asked how quickly the carrier could implement the recommendations. “Let’s say another one or three months because we need to study it to learn if there are things we need to change.”

“The report,” he added by way of explaining the delay, “is 323 pages long.”

While denying that the deficiencies cited in the report played a part in the crash, Mr. Putut said that Lion Air has “tried to improve” how it identifies safety hazards since the disaster.

“The accident hurt us so we have done a deep study of our operational safety to prevent something from occurring again,” he said.

At the same time, however, Mr. Putut defended Lion Air’s business culture, which critics say prioritizes growth over safety.

A former Lion Air chief pilot, Jimmy Kalebos, said that refusing to acknowledge problems was symptomatic of the company’s approach to safety before the crash. That it continues to do so after so many deaths, he added, does not bode well.

“How can you fix a problem,” Mr. Kalebos asked, “if you don’t admit it exists?”

What We Found

In the view of some of the company’s most important employees — its pilots — Lion Air has not taken steps to fix numerous flaws since the crash.

The safety culture at Lion Air has “absolutely not improved,” a pilot said. Like other current and former Lion Air staff members, he agreed to speak only on condition of anonymity to protect his career.

Not a single Lion Air employee has been fired as a result of last year’s accident, according to both government investigators and current and former employees. Mr. Putut refused to confirm or deny if anyone had been let go.

Just as the company does not seem pressed to adopt changes from the report (which is actually 322 pages long), Indonesian officials were quick to defend a carrier that has had 11 accidents and incidents since its founding in 1999, according to the Aviation Safety Network.

In comparison, Spirit Airlines, the American low-cost carrier founded in 1980, has suffered two in its history, one in 2002, the other in 2005. Neither was fatal.

What’s more, many additional serious safety lapses at Lion Air were never investigated by the government because the carrier downplayed them or failed to divulge their likely causes, pilots and maintenance workers at the airline said.

In one case in 2016, a Lion Air jet suffered a total loss of engine oil, forcing the pilot to shut down the engine in flight, according to former employees. Yet the Indonesian National Transportation Safety Committee was never called in to investigate.

“What we see in the news is only the visible part of the iceberg,” one pilot said.

But members of the Indonesian government seemed sanguine about the airline’s safety.

“Lion Air maintenance is good,” said Luhut Pandjaitan, a government minister whose portfolio includes oversight of Indonesia’s transportation network. “Lion pilots have no problem. Lion Air facilities are very good.”

He said much of the criticism was fueled by “Western arrogance.”

But Ahmadji Sumankidjo, one of the minister’s own deputies, said there was an unwritten government preference for civil servants to avoid flying Lion Air.

“You can fly Lion Air,” he said, “but you need to pray to God.”

What We Found

Few airline businesses grew as quickly as Lion Air Group, which oversees several carriers in addition to Lion Air. In 1999, Rusdi Kirana started a low-cost carrier with a few rickety jets. By the time of the crash, Lion Air Group had signed deals for 450 brand-new planes from Boeing and Airbus.

On many routes within Indonesia, whose sprawling archipelago makes air travel an everyday necessity, Lion Air was often the only choice, making its peremptory motto oddly appropriate: “We make people fly.”

The Indonesian government has hailed Mr. Kirana as a visionary whose company employed 30,000 people. A Christian in a Muslim majority country, Mr. Kirana took on a leadership position in an Islamic political party with ties to the government and was named ambassador to Malaysia.

As Lion Air grew, all those new planes needed captains, and the company soon suffered from a dangerous shortage of pilots, according to those who watched the company transform.

In 2016, for example, Lion Air had about 3.5 flight crews (a chief pilot and first officer) for each plane in its fleet, according to company insiders, while the industry norm for airlines operating similar kinds of routes with similar planes is at least twice that.

“Do the math,” said Mr. Kalebos, the former Lion Air pilot. “It just doesn’t add up to safety being No. 1.”

While that ratio has since improved, according to current and former employees, the conditions for pilots remain onerous.

Under Indonesian law, pilots are not allowed to fly more than 110 hours a month. But faked logs of flying hours were rampant at the company, according to former and current pilots.

Eki Adriansjah, a former chief pilot at Lion who also served as a flight instructor, said he once worked 300 hours in a month and was chided by government regulators.

“I told them, ‘Why are you catching me and not the company?’” he said. “Lion was the one pushing me to work like that.”

Airline representatives denied its pilots were overworked.

The carrier also hired pilots with contracts that tied them to the carrier for up to 20 years unless they paid a hefty release fee.

“We are all tired,” said a current Lion Air pilot bound by such a restrictive contract. “I want to stop but I can’t.”

On Nov. 18, a co-pilot for Wings Air, another airline within the Lion Air Group, committed suicide after receiving a termination letter from the carrier telling him he owed $500,000 in penalties for the training he had received. In a statement after his death, Wings Air said it had taken employment actions against an “undisciplined” employee.

Some Lion Air pilots say the workload has improved since last year’s crash, with a computerized system, strengthened after the catastrophe, making it harder to cheat on flying hours.

“This was a problem at Lion, but now not so much,” said Koko Indra Perdana, a Lion Air chief pilot and secretary general of the Indonesian Pilots Professional Association.

Others are skeptical.

“I talk to my friends, and they say it’s the same now, they’re just more careful about hiding it,” Mr. Kalebos said.

What We Found

Current and former pilots at Lion Air recounted dozens of instances, both before and after the crash, in which they felt pressured to fly, despite concerns about the weather, the plane’s airworthiness or even their own alertness.

In two cases, pilots said they were ordered to fly to airports near where forest fires were raging and smoke obscured visibility.

“The manager told me, ‘Oh, you don’t need to see the runway because we have instruments that can see for you,’” said Mr. Eki, the former Lion pilot.

In another case, a Lion Air maintenance crew signed off on a plane as good to go. But the pilot wasn’t confident the plane was fit to fly, and he refused to take off.

Frustrated, a member of the maintenance team contacted a top executive at Lion Air. The pilot soon took to the skies.

Lion Air also had trouble giving its pilots the training necessary to pass a safety audit by the International Air Transport Association, which helps formulate global aviation standards.

Allowing the pilots time for training was hard because the understaffed airline needed them in the air, not in classrooms.

When it became clear that Lion Air would not be able to meet its training targets, a new solution was found, multiple people with the airline at the time said: faking documentation that training had been conducted.

“Fake certificates and a fake attendance list,” said one pilot who was party to the deception. “Now, magically, the S.M.S. training is compliant on paper,” the pilot added, referring to safety management system training. Lion received its I.A.T.A. safety certification in 2016.

Mr. Putut, the carrier’s managing director, said he was not aware of any falsified paperwork. “I’ve never heard about it, these fake certificates,” he said. “I need to check on that.”

What We Found

The Indonesian report on the crash notes how the plane experienced problems with speed and altitude readings for several days before the Oct. 29 crash.

On the morning of Oct. 28, a different flight crew aboard the doomed plane was told to fly it to the island of Bali because an engineer said a fix would be more easily found there.

Friends of the pilot said he was uncomfortable with the decision, given that on the previous leg, the plane had given him highly irregular data readings. But he flew there anyway on the plane that would crash the next day. The pilot did not respond to queries for comment.

“In any other country, making a pilot fly an unsafe plane like that is illegal,” said Mr. Goglia, the former National Transportation Safety Board member. “I don’t have words to describe how bad it is.”

At the Bali airport, a vane, known as an angle of attack sensor, was replaced.

Crash investigators were presented with photographs supposedly showing that a mandatory test was done after the vane had been replaced. But upon further inspection, investigators concluded the photos were from a different aircraft.

“This is a test that Lion Air was required to do, and they didn’t,” said John Cox, an aviation safety consultant.

If the test had been done, engineers likely would have realized the vane was calibrated incorrectly by 21 degrees. The misalignment would prove fatal because it mistakenly catalyzed Boeing’s anti-stall system, forcing the plane into its final plummet.

No government action has been taken related to the doctored photographs.

Questionable decisions continued after the plane took off from Bali on its next-to-last flight. While in the air, the faulty sensor and the automated anti-stall system kept compelling the plane’s nose down.

But once on the ground in Jakarta late on Oct. 28, the flight crew failed to document the full extent of the problems in the plane’s log, 31 pages of which were missing when it was presented to investigators, a breach for which Lion Air was never chided.

As the plane took off on its final flight, the crew of Flight 610 had no idea of all the troubles faced by the pilots a few hours earlier.

“That plane was unairworthy for days,” Mr. Goglia said. “It continued to be unairworthy because Lion Air didn’t take proper corrective action. It was an accident waiting to happen, and it happened.”

What We Found

In Indonesia, there are close ties between airlines and regulators, which industry experts believe have muted criticism and influenced investigations.

Last year, Nurcahyo Utomo, a lead investigator for the National Transportation Safety Committee, repeatedly said at a news conference that the crashed plane was “unairworthy” on its second-to-last flight.

Lion complained. The next morning, the government agency released a statement saying that Mr. Nurcahyo had “NEVER said” what he had, in fact, said.

Government employees in the aviation sector need to fly to keep their pilot licenses. To do so, they fly for and get paid by airlines like Lion Air. This money can outstrip their government paychecks.

The flow of staff from airline to government — and back again — occurs in management ranks, too.

The lead investigator of Lion Air’s first fatal accident, in which 25 people died in 2004 after a pilot overshot the runway, was Ertata Lananggalih. Four years after releasing a report that critics said underplayed Lion Air’s culpability in the crash, he joined the company, working his way up to managing director. He left Lion Air in 2012 and returned to government work as a senior air safety investigator.

“Indonesia is a corrupt country, but the corruption at Lion is the biggest of all,” said Wicaksono Budiarto, a former pilot for the airline who joined 17 others, including Mr. Eki and Mr. Kalebos, in a lawsuit against the company for dismissing them after they refused to fly in what they considered unsafe flying conditions.

The pilots won significant damages, but Lion Air has refused to pay.

“Nothing’s going to change,” Mr. Wicaksono said. “Lion has too much power.”

The Takeaway: After a crash, a company — and a government — deny problems, deflect blame and drag their feet on improvements.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

China’s Vaping Boom Alarms the Government

Westlake Legal Group 00chinavaping-1-facebookJumbo China’s Vaping Boom Alarms the Government vaping Smoking and Tobacco Shenzhen (China) Regulation and Deregulation of Industry Politics and Government Juul Labs Inc E-Cigarettes China

Models in tight dresses and high heels lounged in a yellow inflatable pool filled with plush toys and vaping equipment. Enthusiastic vapers lined up for free pens and pods, as clouds of mango, mint and rose mingled with the electronic dance music in the air.

Attendees of the Shanghai eCig Expo had a lot to celebrate. Vaping has surged in China, drawing money from domestic and Western investors alike. In a country with nearly as many smokers as the entire United States population, the growth potential seemed limitless.

“This,” said Frank Wang, an aspiring entrepreneur who wanted to open his own vaping shop, “is where you can make money now.”

Perhaps not anymore.

China has joined the United States and other governments in putting new pressure on vaping. Regulators have banned online sales of vaping products, and China’s major propaganda outlets have heaped on scrutiny, citing the potential health effects. The government is considering banning vaping in public places.

Beijing’s crackdown threatens an almost exclusively Chinese industry that had been counting on the country as a haven. Ninety percent of the world’s e-cigarettes are made in China, and most of them are produced in Shenzhen, a southern city that borders Hong Kong. Some of the nation’s top e-cigarette brands, including RELX, FLOW and Yooz, have taken hundreds of millions of dollars in venture capital funding from high-profile names like Sequoia China, IDG Capital and Matrix Partners China. The firms did not respond to requests for comment.

The new scrutiny adds to the troubles for Chinese e-cigarette exporters, already hammered by the vaping-related health crisis in the United States that has sickened at least 2,200 people and killed 47.

While exporters have long dominated China’s e-cigarette industry, the domestic market took off only about three years ago. Of the ten million e-cigarette users in China, most are young people who vape sleek, brightly colored devices with flavors like chilled strawberry and orange soda.

Euromonitor, the global market research consultancy, said China’s e-cigarette market was worth $750.4 million in 2018, nearly triple the 2014 value. China has more than 300 million smokers, out of a population of nearly 1.4 billion. In the United States, 10.8 million adults vape.

Juul Labs, which is under fire in the United States for marketing its e-cigarettes to teenagers and children, wanted to cash in too. But just days after starting business in China, its products were removed from Alibaba and JD.com, two of the biggest e-commerce platforms. Neither the government nor the company gave any explanation. Juul had paid to be at the e-cigarette fair in Shanghai starting in late October but withdrew at the last minute because of the crisis in the United States, according to Li Wangfeng, project director of the expo.

Concerns are mounting about the hazards of vaping among the young, prompting many Chinese to call for regulations. A 2018 tobacco survey commissioned by China’s Center for Disease Control found that people 15 to 24 years old were the most avid vapers, with most buying their devices online.

In recent weeks, the state news media has kept up its drumbeat of negative coverage of the industry. On Nov. 4, the most-read article on the website of People’s Daily, the Communist Party’s official newspaper, noted that most e-cigarette companies continued selling their products online despite the ban. The next day, China’s state broadcaster, China Central Television, showed Beijing officials summoning companies to comply with the ban. The day after that, e-cigarettes were no longer available on Alibaba’s Taobao and JD.com, two of China’s most popular e-commerce platforms.

For years, the Chinese government allowed the lucrative e-cigarette industry to thrive with no supervision. There was never any consensus on whether e-cigarettes should be classified as tobacco, health or electronics products and which agency should regulate them. Part of the problem, too, is that China’s top tobacco authority is both a regulator and producer of cigarettes.

In an industry with low barriers to entry, manufacturers took advantage of this void. According to Tianyancha, a corporate database in China, the country has more than 9,500 e-cigarette companies.

Many of these brands have haphazard quality controls that have resulted in knockoffs, unsafe ingredients and vape liquid leakage, but the authorities have rarely policed these companies. In March, CCTV said eight e-cigarette companies made vaping oils with nicotine levels that were higher than what the package stated.

Alarmed by these reports, the government is set to force producers to comply with standards on ingredients and manufacturing, according to a draft viewed by The New York Times.

Once the “national standard” is enacted, companies would be required to provide details on the number and dosage of ingredients, put warnings on packages, and devise ways of testing e-cigarettes to ensure compliance.

The process would increase production costs, industry experts say, and is likely to put many small e-cigarette exporters out of business.

But Ou Junbiao, head of the Electronic Cigarette Industry Committee of China trade group, said he welcomed the rules because they would give him clear guidelines. He said that previously many companies like his never dared to sell in China for fear of running afoul of the government.

“Once the national standard comes out, I can follow its targets and make big investments,” said Mr. Ou, a former factory worker and owner of Sigelei, one of China’s top e-cigarette exporters to the United States, in his office in Shenzhen. “I won’t have to worry that something will happen but now I don’t know which day the sword would fall.”

E-cigarette executives in China were unanimous in attributing the vaping-related illnesses in the United States to the use of THC, the psychoactive ingredient in marijuana, and vitamin E acetate. The majority of the American victims had vaped THC, but some say only nicotine was involved.

In Shenzhen, several vaping manufacturers have laid off workers, according to two labor recruiters.

At the Shanghai expo, Chen Lin, a sales manager for a company that produces parts of e-cigarette atomizers, said his company’s sales fell 80 percent in the past month.

“We basically have no orders coming in this month after what happened in the United States,” said Mr. Chen, who came to the expo to look for business partners.

Within China, RELX has become the dominant seller of e-cigarettes and controls 44.4 percent of the market for closed vaping systems, e-cigarette pens that come filled, according to data from Euromonitor. It has nearly $286 million in financing, according to its founder, Kate Wang, from major venture capital firms like Sequoia China.

Ms. Wang started RELX in 2017, after testing 20 e-cigarettes in the Chinese market and discovering they did not meet her expectations. She said she was motivated to help her two-pack-a-day father quit smoking.

Jiang Xingtao, whose title is “director of flavors” at RELX, said that while vaping was safer than smoking tobacco, the jury was still out on whether it is definitively safe.

He is collecting data in RELX’s lab in Shenzhen to determine the risks and wants to run clinical trials, singling out the flavoring ingredients.

“We can guarantee that they are safe to be consumed through the stomachs, but is it safe enough to be absorbed through the lungs?” Mr. Jiang said. “To be honest, in this respect, neither we nor the industry has evidence that is particularly solid.”

Yiwei Wang contributed research.

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Big Tech’s Toughest Opponent Says She’s Just Getting Started

Westlake Legal Group 18VESTAGER-facebookJumbo Big Tech’s Toughest Opponent Says She’s Just Getting Started Vestager, Margrethe Regulation and Deregulation of Industry Politics and Government International Trade and World Market Google Inc Facebook Inc European Commission Computers and the Internet Apple Inc Antitrust Laws and Competition Issues Amazon.com Inc

BRUSSELS — Margrethe Vestager spent the past five years developing a well-earned reputation as the world’s top tech industry watchdog. From her perch overseeing Europe’s competition rules, she fined Google more than $9 billion for breaking antitrust laws, and forced Apple to pay about $14.5 billion for dodging taxes.

Now she says that work, which made her a hero among tech critics, did not go far enough. The biggest tech companies continue to test the limits of antitrust laws, behave unethically and push back against government intervention, she said.

But she said the public’s growing skepticism about technology has given her an opportunity for a tougher approach.

“In the last five years,” Ms. Vestager said in an extended interview, “some of the darker sides of digital technologies have become visible.”

So Ms. Vestager, a 51-year-old former Danish lawmaker, is doubling down. She has signed on for a rare second five-year term as the head of the European Commission’s antitrust division, and assumed expanded responsibility over digital policy across the 28-nation bloc.

With the new power, she has outlined an agenda that squarely targets the tech giants. She’s weighing whether to remove some protections that shield large internet platforms from liability for content posted by users. She is also working on policies to make companies pay more taxes in Europe and investigating how the companies use data to box out competitors.

Ms. Vestager has pledged to create the world’s first regulations around artificial intelligence and called for giving collective bargaining rights to so-called gig economy workers like Uber drivers. The push comes on top of an investigation into Amazon’s use of data to gain an edge on competitors that had already started, and her look into accusations of unfair business practices by Facebook and Apple.

“She has these accomplishments, but she didn’t get as much as she wanted,” said David Balto, a former lawyer in the Justice Department’s antitrust division whose clients now include large tech companies. “Now she can be more aggressive.”

But Ms. Vestager’s agenda amounts to a wish list. Her success will depend on support and collaboration from other European officials who are already grappling with challenges like Britain’s exit from the European Union, the rise of populism and fraying diplomatic relations with the United States.

It will require standing up to relentless resistance from the tech companies, too.

“One of the important things is, of course, to prioritize because otherwise you will be in the process of back and forth for a very, very long time,” Ms. Vestager said.

In person, Ms. Vestager’s manner defies her tough enforcer reputation. She is unfailingly polite, meeting guests by offering tea and apologizing for a lingering cold. (She assured everyone that she had just washed her hands.)

She is a challenging interview subject, prone to filibuster and rarely veering from oft-repeated talking points. A skilled politician, she projects modesty while not exactly turning away from the spotlight. A sign in the hallway outside her office says, in Danish, “Vestager Street.”

She is also fast to shrug off criticism, including by numerous tech executives and President Trump, that she has been unfair to American tech companies.

Tim Cook, Apple’s chief executive, called the penalty against his company in 2016 for skirting Irish taxes “total political crap.” Google is appealing her three decisions against the company.

“She hates the United States,” President Trump said in a television interview in June, “perhaps worse than any person I’ve ever met.”

Ms. Vestager feigns to hardly remember the president’s comment. “Since I know the very good relationship I have with the United States, then he must only meet people who really like the States if I am the one who likes you the least,” she said.

If anything, American authorities are coming around to share her tech skepticism. Federal, state and congressional investigators are scrutinizing the tech industry over unfair business practices. Ms. Vestager said she saw opportunities to collaborate, but was waiting to see how the inquiries unfolded.

“Obviously it’s very interesting to see what will come of it,” she said.

As the United States begins to investigate Amazon, Apple, Facebook and Google, some American officials are trying to learn lessons from Europe’s efforts. The investigations of Google and others took years to complete, giving the companies extra time to solidify their dominance. And once the inquiries were completed, critics said, the penalties focused on large fines that the companies could easily afford, rather than enforcing structural changes that would restore competition.

Luther Lowe, the head of public policy at Yelp, the reviews website that has been a frequent critic of Google’s behavior, praised Ms. Vestager’s efforts. But he said companies like Yelp “have to date still not seen a shred of practical relief, despite having prevailed in concept.”

Ms. Vestager needs to use all powers at her disposal, he said, “or be granted new ones.”

Ms. Vestager said some of the criticism was valid. She is taking steps to speed up investigations and is applying a rarely used rule known as “interim measures,” that acts as a cease-and-desist order for companies to stop acting a certain way while an investigation can be conducted.

She will play a leading role in the European Union’s debate over a new Digital Services Act, which could bring sweeping reforms to how the internet operates, including forcing online platforms to remove illegal content or risk fines and other penalties. Facebook, she said, must be quicker to stop the spread of false and misleading information, violent material and hate speech.

“You have to take it down because it spreads like a virus,” she said. “But if it’s not fast enough, of course, eventually we will have to regulate this.”

And she remains focused on whether the largest technology companies squeezed out businesses that rely on them to reach customers. Amazon is under investigation for mistreating third-party sellers that offer products similar to what it sells. Apple is being questioned over accusations that it uses the App Store to harm rivals such as Spotify.

“Some of these platforms, they have the role both as player and referee, and how can that be fair?” she asked. “You would never accept a football match where the one team was also being the referee.”

In Europe, a broader debate is underway about a lack of homegrown tech giants. President Emmanuel Macron of France, for instance, has called for more government support of European companies. Ursula von der Leyen, the new head of the European Commission, who appointed Ms. Vestager, has called for Europe to achieve “technological sovereignty.”

The companies facing Ms. Vestager’s scrutiny are warning about taking regulation too far.

Christian Borggreen, vice president of the Computer and Communications Industry Association in Brussels, a trade group representing Apple, Google and other companies, warned that new laws could put Europe at a disadvantage.

“We hope future E.U. legislation will be evidence-based and never become an excuse for protectionism,” he said.

Ms. Vestager has said that European companies must compete on their merits.

“One of the main reasons that U.S. tech companies are popular in Europe is that their products are good,” she said. Her job, she added, has been to step in when companies “cut corners.”

Ms. Vestager said Europe had a different view of technology than the wide-open policies of the United States and government control of China. Europe, she said, must forge its own approach.

“Market forces are more than welcome, but we do not leave it to market forces to have the final say,” she said. “Markets are not perfect.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Silicon Valley’s Biggest Foe Is Getting Even Tougher

Westlake Legal Group 18VESTAGER-facebookJumbo Silicon Valley’s Biggest Foe Is Getting Even Tougher Vestager, Margrethe Regulation and Deregulation of Industry Politics and Government International Trade and World Market Google Inc Facebook Inc European Commission Computers and the Internet Apple Inc Antitrust Laws and Competition Issues Amazon.com Inc

BRUSSELS — Margrethe Vestager spent the past five years developing a well-earned reputation as the world’s top tech industry watchdog. From her perch overseeing Europe’s competition rules, she fined Google more than $9 billion for breaking antitrust laws, and forced Apple to pay about $14.5 billion for dodging taxes.

Now she says that work, which made her a hero among tech critics, did not go far enough. The biggest tech companies continue to test the limits of antitrust laws, behave unethically and push back against government intervention, she said.

But she said the public’s growing skepticism about technology has given her an opportunity for a tougher approach.

“In the last five years,” Ms. Vestager said in an extended interview, “some of the darker sides of digital technologies have become visible.”

So Ms. Vestager, a 51-year-old former Danish lawmaker, is doubling down. She has signed on for a rare second five-year term as the head of the European Commission’s antitrust division, and assumed expanded responsibility over digital policy across the 28-nation bloc.

With the new power, she has outlined an agenda that squarely targets the tech giants. She’s weighing whether to remove some protections that shield large internet platforms from liability for content posted by users. She is also working on policies to make companies pay more taxes in Europe and investigating how the companies use data to box out competitors.

Ms. Vestager has pledged to create the world’s first regulations around artificial intelligence and called for giving collective bargaining rights to so-called gig economy workers like Uber drivers. The push comes on top of an investigation into Amazon’s use of data to gain an edge on competitors that had already started, and her look into accusations of unfair business practices by Facebook and Apple.

“She has these accomplishments, but she didn’t get as much as she wanted,” said David Balto, a former lawyer in the Justice Department’s antitrust division whose clients now include large tech companies. “Now she can be more aggressive.”

But Ms. Vestager’s agenda amounts to a wish list. Her success will depend on support and collaboration from other European officials who are already grappling with challenges like Britain’s exit from the European Union, the rise of populism and fraying diplomatic relations with the United States.

It will require standing up to relentless resistance from the tech companies, too.

“One of the important things is, of course, to prioritize because otherwise you will be in the process of back and forth for a very, very long time,” Ms. Vestager said.

In person, Ms. Vestager’s manner defies her tough enforcer reputation. She is unfailingly polite, meeting guests by offering tea and apologizing for a lingering cold. (She assured everyone that she had just washed her hands.)

She is a challenging interview subject, prone to filibuster and rarely veering from oft-repeated talking points. A skilled politician, she projects modesty while not exactly turning away from the spotlight. A sign in the hallway outside her office says, in Danish, “Vestager Street.”

She is also fast to shrug off criticism, including by numerous tech executives and President Trump, that she has been unfair to American tech companies.

Tim Cook, Apple’s chief executive, called the penalty against his company in 2016 for skirting Irish taxes “total political crap.” Google is appealing her three decisions against the company.

“She hates the United States,” President Trump said in a television interview in June, “perhaps worse than any person I’ve ever met.”

Ms. Vestager feigns to hardly remember the president’s comment. “Since I know the very good relationship I have with the United States, then he must only meet people who really like the States if I am the one who likes you the least,” she said.

If anything, American authorities are coming around to share her tech skepticism. Federal, state and congressional investigators are scrutinizing the tech industry over unfair business practices. Ms. Vestager said she saw opportunities to collaborate, but was waiting to see how the inquiries unfolded.

“Obviously it’s very interesting to see what will come of it,” she said.

As the United States begins to investigate Amazon, Apple, Facebook and Google, some American officials are trying to learn lessons from Europe’s efforts. The investigations of Google and others took years to complete, giving the companies extra time to solidify their dominance. And once the inquiries were completed, critics said, the penalties focused on large fines that the companies could easily afford, rather than enforcing structural changes that would restore competition.

Luther Lowe, the head of public policy at Yelp, the reviews website that has been a frequent critic of Google’s behavior, praised Ms. Vestager’s efforts. But he said companies like Yelp “have to date still not seen a shred of practical relief, despite having prevailed in concept.”

Ms. Vestager needs to use all powers at her disposal, he said, “or be granted new ones.”

Ms. Vestager said some of the criticism was valid. She is taking steps to speed up investigations and is applying a rarely used rule known as “interim measures,” that acts as a cease-and-desist order for companies to stop acting a certain way while an investigation can be conducted.

She will play a leading role in the European Union’s debate over a new Digital Services Act, which could bring sweeping reforms to how the internet operates, including forcing online platforms to remove illegal content or risk fines and other penalties. Facebook, she said, must be quicker to stop the spread of false and misleading information, violent material and hate speech.

“You have to take it down because it spreads like a virus,” she said. “But if it’s not fast enough, of course, eventually we will have to regulate this.”

And she remains focused on whether the largest technology companies squeezed out businesses that rely on them to reach customers. Amazon is under investigation for mistreating third-party sellers that offer products similar to what it sells. Apple is being questioned over accusations that it uses the App Store to harm rivals such as Spotify.

“Some of these platforms, they have the role both as player and referee, and how can that be fair?” she asked. “You would never accept a football match where the one team was also being the referee.”

In Europe, a broader debate is underway about a lack of homegrown tech giants. President Emmanuel Macron of France, for instance, has called for more government support of European companies. Ursula von der Leyen, the new head of the European Commission, who appointed Ms. Vestager, has called for Europe to achieve “technological sovereignty.”

The companies facing Ms. Vestager’s scrutiny are warning about taking regulation too far.

Christian Borggreen, vice president of the Computer and Communications Industry Association in Brussels, a trade group representing Apple, Google and other companies, warned that new laws could put Europe at a disadvantage.

“We hope future E.U. legislation will be evidence-based and never become an excuse for protectionism,” he said.

Ms. Vestager has said that European companies must compete on their merits.

“One of the main reasons that U.S. tech companies are popular in Europe is that their products are good,” she said. Her job, she added, has been to step in when companies “cut corners.”

Ms. Vestager said Europe had a different view of technology than the wide-open policies of the United States and government control of China. Europe, she said, must forge its own approach.

“Market forces are more than welcome, but we do not leave it to market forces to have the final say,” she said. “Markets are not perfect.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Facebook’s Zuckerberg, Accused of Lying, Withstands a Washington ‘Beating’

WASHINGTON — Mark Zuckerberg, the Facebook chief executive, traveled to Washington to defend a cryptocurrency project that has become the latest target of criticism from lawmakers frustrated with the social media giant.

But he ended up answering for a smorgasbord of other issues on Wednesday, as members of the House Financial Services Committee took Mr. Zuckerberg to task for everything from political advertising and disinformation campaigns to work force diversity and child pornography.

Representative Maxine Waters, the Democratic committee chairwoman, set the tone of the meeting early. She grilled Mr. Zuckerberg on Facebook’s willingness to allow virtually unfettered speech across the platform and its recent decision to take a hands-off approach to vetting political advertising.

“The impact of this will be a massive voter suppression effort. Your claim to promote freedom of speech does not ring true,” Ms. Waters said.

In recent months lawmakers have been unsparing in their criticism of Facebook as well as Mr. Zuckerberg. On Wednesday, that criticism dragged on for more than five hours of political theater, making it glaringly apparent just how skeptical of Facebook Congress has become through nearly three years of controversy.

That skepticism is not limited to Capitol Hill. The company now faces a range of investigations into its behavior by regulators in a number of countries and by 47 state attorneys general, as well as increasing calls that it should be broken up into a number of smaller, less powerful companies.

Mr. Zuckerberg acknowledged his company has a trust problem. “I get that I’m not the ideal messenger for this right now,” he said. “We certainly have work to do to build trust.”

Despite occasional stumbles, Mr. Zuckerberg, surrounded at the hearing by a nearly full front row of Facebook lawyers, top lobbyists and public relations executives, stayed calm under the harsh questioning. He did what he was supposed to do as the chief executive of a big company called to heel in Washington. He took the heat.

And Mr. Zuckerberg still brightened when the grab-bag discussion veered into the technical details of Libra.

While presenting a rosy view of how the cryptocurrency would provide a safe way for billions of people around the world without bank accounts to exchange money affordably, he pledged Facebook would not offer Libra anywhere in the world “unless all U.S. regulators approve it.”

ImageWestlake Legal Group merlin_163178382_50c5996c-1b4b-45e9-8908-cc5244ccc42b-articleLarge Facebook’s Zuckerberg, Accused of Lying, Withstands a Washington ‘Beating’ Zuckerberg, Mark E Virtual Currency Social Media Regulation and Deregulation of Industry Libra (Currency) House of Representatives Facebook Inc Computers and the Internet

Representative Maxine Waters, the financial services committee chairwoman, questioned Mr. Zuckerberg on Facebook’s polices across its services.CreditEric Thayer for The New York Times

But committee members questioned whether Facebook executives can be taken at their word.

Representative Nydia M. Velázquez, a Democrat from New York, pointed to Facebook’s promise in its acquisition of WhatsApp in 2014 to keep the messaging app separate from the main Facebook platform. But a few years later, Mr. Zuckerberg announced it would merge data between the two apps.

“Do you understand why this record makes us concerned with Facebook entering the cryptocurrency space? Have you learned that you should not lie?” Ms. Velásquez said.

Mr. Zuckerberg was defensive. “Congresswoman, I would disagree with the characterization,” he said before getting cut off again by further questions.

Representatives homed in on issues of national security, and the ways that bad actors have used cryptocurrencies to pursue illicit activity.

“You’re creating a whole new currency, which could be anonymous, that could create a whole new threat to Americans and national security, which is a huge concern,” said Representative Carolyn Maloney, Democrat of New York.

Representative Ann Wagner, a Republican from Missouri, said she was troubled by Facebook’s history of dealing with child pornography on the site. The company has reported discovering millions of exploitative images and videos.

“You are not working hard enough, and end-to-end encryption is not going to help the problem,” Ms. Wagner said.

Mr. Zuckerberg acknowledged the difficulties of policing a global platform, but was again defensive as he was challenged on his company’s ability to respond to the proliferation of images on it.

”We work harder than any other company to identify this behavior,” Mr. Zuckerberg said.

Representative Rashida Tlaib, Democrat of Michigan, clashed with Mr. Zuckerberg on his company’s lax attitude around its speech policies — particularly the company’s desire not to fact-check political campaign advertising.

Ms. Tlaib said the practice has resulted in widespread hate-mongering and a flurry of false information about her, personally. “It is hate speech, it’s hate, and it’s leading to violence and death threats in my office,” she said.

And in a particularly intense round of questioning, Representative Joyce Beatty, Democrat of Ohio, said she found Facebook’s track record on issues of diversity and inclusion at the company “appalling and disgusting.”

“It’s almost like you think this is a joke, when you have ruined the lives of many people,” Ms. Beatty said.

Republican members of the committee were generally more supportive of Mr. Zuckerberg. Representative Patrick McHenry of North Carolina, the top-ranking Republican, said that Democrats were going too far in trying to rein in new technology like Libra.

“American innovation is on trial today in this hearing,” Mr. McHenry said.

Mr. Zuckerberg followed on that point, saying if American regulators managed to stop Libra, it would help countries like China develop their own similar financial projects — efforts that could hurt the United States and the dominant role of the dollar.

“While we debate these issues, the rest of the world isn’t waiting,” Mr. Zuckerberg said. “If America doesn’t innovate, our financial leadership isn’t guaranteed.”

A torrent of criticism has been directed toward Facebook’s cryptocurrency effort since it was announced in June. But Mr. Zuckerberg, who is personally fascinated by cryptocurrencies, is committed to the project.

In the past week, Facebook officials have been on a charm offensive with regulators and lawmakers, leading up to the hearing on Wednesday. And Mr. Zuckerberg has taken on a more assertive role in defending the social network in Washington in recent weeks.

Facebook has one of the biggest influence operations in Washington and has fortified its lobbying in response to the increased government scrutiny this year. The company now works with 60 internal and contract lobbyists, about twice the number it had in 2016.

The company is on track to spend $12.3 million to lobby the federal government in the first nine months of the year, compared with $12.6 million for all of last year, according to public filings.

But the financial industry and tech companies are growing increasingly leery of the cryptocurrency project. Facebook originally brought on 27 partners to join a Libra Association in Switzerland that is supposed to govern the network. But several big-name partners, including PayPal, Mastercard and Visa, have dropped out.

Though Mr. Zuckerberg remained collected during the marathon session, it was made clear how difficult it will be to win the confidence of lawmakers.

“It’s good to have someone that’s sturdy and resilient,” Representative Juan Vargas, Democrat of California, said to Mr. Zuckerberg. “You’re probably the right person at the right time to take this beating.”

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Zuckerberg, in Washington to Talk Cryptocurrency, Gets Grilled on Everything

Westlake Legal Group 23zuck-facebookJumbo Zuckerberg, in Washington to Talk Cryptocurrency, Gets Grilled on Everything Zuckerberg, Mark E Virtual Currency Social Media Regulation and Deregulation of Industry Libra (Currency) House of Representatives Facebook Inc Computers and the Internet

WASHINGTON — Mark Zuckerberg, Facebook’s chief executive, returned to the hot seat on Wednesday to defend a cryptocurrency project that has become the latest target of criticism from lawmakers frustrated with the social media giant.

He ended up defending Facebook on a range of issues, from political advertising to housing discrimination and child pornography.

In a hearing before the House Financial Services Committee, Mr. Zuckerberg presented a rosy view of how the cryptocurrency would provide a safe way for millions of Americans without bank accounts to exchange money affordably.

And in a response to an outcry from financial regulators, he said Facebook would not offer Libra, its cryptocurrency initiative, anywhere in the world “unless all U.S. regulators approve it.”

Lawmakers have been unsparing in their criticism of Libra and Facebook’s leader. On Wednesday morning, they also took the opportunity to call Mr. Zuckerberg on the carpet for its many issues of the last three years.

Representative Maxine Waters, the committee chairwoman, set the tone of the meeting early. She grilled Mr. Zuckerberg on the company’s political ads policy, Facebook’s willingness to allow virtually unfettered speech across the platform and the company’s shifting positions on how it wished to treat so-called blockchain advertising and technology across its services.

“The impact of this will be a massive voter suppression effort. Your claim to promote freedom of speech does not ring true,” she said.

Ms. Waters started the hearing with an opening statement that also touched on the company’s continued problems with foreign election interference, privacy violations, its poor record on work force diversity and allegations of housing discrimination from its ads platform.

Committee members said Facebook faced a credibility crisis. Representative Nydia M. Velázquez, a Democrat from New York, pointed to Facebook’s promise in its acquisition of WhatsApp in 2014 to keep the messaging app separate from the main Facebook platform. But a few years later, Mr. Zuckerberg announced it would merge data between the two apps.

“Do you understand why this record makes us concerned with Facebook entering the cryptocurrency space? Have you learned that you should not lie?” Ms. Velásquez said.

Mr. Zuckerberg was defensive. “Congresswoman, I would disagree with the characterization,” he said before getting cut off again by further questions.

Representatives homed in on issues of national security, and the ways that bad actors have used cryptocurrencies to pursue illicit activity.

“You’re creating a whole new currency, which could be anonymous, that could create a whole new threat to Americans and national security, which is a huge concern,” said Representative Carolyn Maloney, Democrat of New York.

Representative Ann Wagner, a Republican from Missouri, said she was troubled by Facebook’s history of dealing with child pornography on the site. The company has reported discovering millions of exploitative images and videos.

“You are not working hard enough and end-to-end encryption is not going to help the problem,” Ms. Wagner said.

Mr. Zuckerberg acknowledged the difficulties of policing a global platform, but was again defensive as he was challenged on his company’s ability to respond to the proliferation of images on Facebook.

”We work harder than any other company to identify this behavior,” Mr. Zuckerberg said.

A torrent of criticism has been directed toward Facebook’s cryptocurrency effort since it was announced in June. But Mr. Zuckerberg, who is personally fascinated by cryptocurrencies, is committed to the project.

In the past week, Facebook officials have been on a charm offensive with regulators and lawmakers, leading up to the hearing on Wednesday. And Mr. Zuckerberg has taken on a more assertive role in defending the social network in Washington in recent weeks.

Facebook has one of the biggest influence operations in Washington and has fortified its lobbying in response to the increased government scrutiny this year. The company is on track to spend $12.3 million to lobby the federal government in the first nine months of the year, compared with $12.6 million for all of last year, according to public filings.

But the financial industry and tech companies are growing increasingly leery of the cryptocurrency project. Facebook originally brought on 27 partners to join a Libra Association in Switzerland that is supposed to govern the network. But several big-name partners, including PayPal, Mastercard and Visa, have dropped out.

Mr. Zuckerberg described Libra as a democratizing financial system that would benefit mostly poor consumers, as well as the estimated 14 million people in the United States who do not have access to bank accounts and who cannot afford banking fees.

“People pay far too high a cost — and have to wait far too long — to send money home to their families abroad. The current system is failing them,” Mr. Zuckerberg said in the advance version of his testimony. “The financial industry is stagnant and there is no digital financial architecture to support the innovation we need. I believe this problem can be solved, and Libra can help.”

This is a developing story. It will be updated.

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Zuckerberg to Admit That Facebook Has Trust Issues

Westlake Legal Group 22libra-facebookJumbo Zuckerberg to Admit That Facebook Has Trust Issues Zuckerberg, Mark E Waters, Maxine Virtual Currency Social Media Regulation and Deregulation of Industry Libra (Currency) Instant Messaging House Financial Services Committee Facebook Inc Computers and the Internet Calibra

SAN FRANCISCO — Mark Zuckerberg hopes that one day, in the not too distant future, billions of people will use a cryptocurrency created by Facebook to send money to friends and family around the world.

Mr. Zuckerberg also recognizes that his company is a major impediment to that vision.

Mr. Zuckerberg, the chief executive of Facebook, is expected to admit as much on Wednesday when he testifies about his company’s cryptocurrency project at a House Financial Services Committee hearing.

“I believe this is something that needs to get built, but I understand we’re not the ideal messenger right now,” Mr. Zuckerberg will say, according to written testimony submitted before the hearing. “I know some people wonder whether we can be trusted to build payment services that protect consumers.”

A torrent of criticism has been directed toward Facebook’s cryptocurrency effort, called Libra, since it was announced in June. But the company is pressing on. And Facebook officials over the last week have been on a charm offensive with regulators and lawmakers in Washington, leading up to Wednesday’s hearing.

In his testimony, Mr. Zuckerberg is expected to promote the benefits of Libra. He plans to describe Libra as a democratizing financial system that will mostly benefit the poor, as well as the estimated 14 million people in the United States who do not have access to bank accounts and who cannot afford banking fees.

“People pay far too high a cost — and have to wait far too long — to send money home to their families abroad. The current system is failing them,” Mr. Zuckerberg said in the advance version of his testimony. “The financial industry is stagnant and there is no digital financial architecture to support the innovation we need. I believe this problem can be solved, and Libra can help.”

Facebook’s cryptocurrency project is the latest controversy to draw Mr. Zuckerberg to Washington.

Last week, he delivered a manifesto on free expression at Georgetown University, defying requests by Democratic politicians to take down false and misleading information by political leaders. Weeks earlier, he met with President Trump and Republican lawmakers to beat down accusations that Facebook gives priority to liberal-leaning content.

The House hearing will be the second time Mr. Zuckerberg has testified on Capitol Hill. In 2018, he was asked to respond to claims that the company did not properly handle its users’ data and had not treated privacy concerns with seriousness.

A few weeks after Libra was unveiled, Maxine Waters, Democrat from California and chairwoman of the House Financial Services Committee, led several lawmakers in a call for Facebook to stop the project until it was vetted by lawmakers and regulators. David Marcus, the Facebook executive in charge of Libra, appeared before Ms. Waters’s committee in July, but he appeared to make little progress toward détente with the lawmakers.

Central bankers around the world have also expressed concerns about Libra. And regulators say they do not have clear answers on how Facebook will handle important tasks like preventing criminal activity and ensuring the privacy of users.

Facebook officials envision Libra being incorporated into the company’s various messaging services, like WhatsApp and Facebook Messenger. It could, over time, create a new revenue stream for the company.

Though Facebook said it plans to allow people to use the cryptocurrency free, executives proposed offering different types of consumer financial services if the cryptocurrency catches on. Calibra, the separate entity Facebook has created to work on the Libra project, could ultimately offer financial products to people who regularly use Libra — much as a bank would.

Facebook originally brought on 27 partners to join a Libra Association in Switzerland that is supposed to govern the network. But several big-name partners, including PayPal, Mastercard and Visa, have dropped out in recent weeks.

In his testimony, Mr. Zuckerberg will say that Facebook will not allow the project to move forward until it gains the approval of the necessary regulators.

“Even though the Libra Association is independent and we don’t control it, I want to be clear: Facebook will not be part of launching the Libra payments system anywhere in the world until U.S. regulators approve,” he is expected to say.

The committee oversees housing, and Ms. Waters is expected to press Mr. Zuckerberg on accusations that Facebook has allowed discriminatory ad targeting for housing.

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In a High-Tech State, Blackouts Are a Low-Tech Way to Prevent Fires

Westlake Legal Group 12grid-1-facebookJumbo In a High-Tech State, Blackouts Are a Low-Tech Way to Prevent Fires Wildfires Solar Energy Schneider Electric SA San Diego Gas&Electric Regulation and Deregulation of Industry Power Failures and Blackouts Lovins, Amory B California Public Utilities Commission California Bloom Energy

California has a reputation as a haven for technological innovation. But the state’s largest power utility is using the lowest of low-tech solutions — rolling blackouts — to protect dry landscapes from live power lines that could spark or overheat and set wildfires.

The utility, Pacific Gas & Electric, turned off power to broad areas, including urban and suburban developments far from the risk of fire, this past week. And the utility had to send some crews into the field to start the blackouts and then restore power — an antiquated method, energy experts said — rather than relying on a more centrally controlled operation.

But there are several rapidly developing types of technology that can reduce the need for some of the most dangerous lines and limit the extent of territory left in the dark.

“It’s an incredible travesty, this sort of really crude and unsophisticated approach for dealing with what is a very serious issue,” said Jack Brouwer, an engineering professor and director of the National Fuel Cell Research Center at the University of California, Irvine.

“We have technological solutions for this that exist,” Mr. Brouwer said. Unfortunately, he said, California regulations and planning have been “insufficient for that technology to be used instead of just turning the power off.”

One of the approaches, called microgrids, involves using power sources like solar panels and diesel engines to provide electricity for a community, a cluster of buildings or even a manufacturing site. Because that electricity circulates only locally, a microgrid can eliminate the need to transmit power over long distances.

Depending on how the microgrid is designed, some or all of the lights can stay on, whether or not the main grid is energized.

Amory Lovins, a co-founder and former chief scientist of Rocky Mountain Institute, a nonprofit group that focuses on energy, said that the vast majority of power outages begin with failures of the grid — the transmission and distribution lines and the equipment surrounding them — rather than with power plants. In places like California, those failed power lines can generate fires.

“That’s part of the logic of microgrids,” Mr. Lovins said. “It’s not big enough to need long-distance transmission, which is where a lot of the fire issues are arising.”

“It could be part of the solution in California,” Mr. Lovins added.

Some industry experts defended PG&E’s use of the blackouts.

“It’s one of the tools in the toolbox, and given that safety is paramount, they are erring on the side of caution,” said Scott Aaronson, vice president for security and preparedness at the Edison Electric Institute, an industry group. “It’s not exactly an elegant solution, but it does save lives and property.”

He added, “They’re doing what they can given the topography that they serve and where the threats of ignition are.”

A town that uses microgrids can disconnect from the main grid either temporarily or permanently, depending on how the microgrid is designed. Some communities that have experienced frequent blackouts are taking a closer look at using microgrids to unplug themselves from the broader power system during emergencies. That way, they can use a variety of local power sources, like diesel generators, solar panels, gas turbines or fuel cells.

Fuel cells are a particularly efficient power generator. Both fuel cells and gas turbines usually rely on another grid — the highly reliable network of natural gas pipelines beneath the ground.

The town of Borrego Springs, which is 86 miles northeast of San Diego and is served by a single long-distance transmission line, uses a microgrid. After a wildfire took down that line in 2007, leaving the town’s 3,500 residents stranded without power for two days, the local utility, San Diego Gas & Electric, built a microgrid demonstration project for the town.

Today, if the transmission line feeding power to Borrego Springs goes down, the town can detach itself from the grid and draw power from an array of diesel generators, solar farms, rooftop solar panels and batteries. The system faced an early test in 2013, when severe storms knocked out the power lines and the microgrid fed power to more than 1,000 customers and critical facilities — such as gas stations, stores and a cooling center at the library — for more than 20 hours while the line was being repaired.

The drawback of microgrids is that they can take years to build and they tend to be more expensive than the traditional grid. San Diego Gas & Electric relied on $13 million in state and federal grants to set up the Borrego Springs project and is still working to refine the system. But the costs of blackouts can also be high: Borrego Springs has a large elderly population and can experience 100-degree heat in the summer.

Interest in microgrids is rapidly growing around the United States. Philadelphia’s Navy Yard, Alcatraz Island and an affordable housing complex in Brooklyn all have versions of microgrids that can operate autonomously when the larger power grid goes down. And while many of these microgrids rely on diesel or gas power to provide electricity around the clock, some are incorporating cleaner energies like solar power and batteries as the prices of those technologies drop.

“A lot of interest in minigrids in the United States has been in response to disasters,” said Paulina Jaramillo, a professor of engineering and public policy at Carnegie Mellon University. “Large centralized grids usually have a cost advantage because of economies of scale, but if there are reliability risks, it makes sense for communities to take into account the cost of those outages.”

In the earliest years of electrical service in cities, all the networks were so small that they were, effectively, microgrids, said Harold L. Platt, author of “The Electric City” and professor of history emeritus at Loyola University Chicago.

“From the 1900s into the nuclear era, you could keep building them bigger and bigger,” Mr. Platt said. “You achieve efficiencies by having high-voltage transmission lines, so you could connect all these local grids and power them from these giant generator stations.”

The expansion meant efficiency, but also the potential for much larger outages — as in 2003, when power lines in Ohio sagged into trees and became inoperable, setting off a blackout that swept north as far as Canada and then down the East Coast of the United States. The cost of a line sparking or shorting out in dry zones like the California hills can be far greater — leading to not just a blackout but also a fire.

Mark Feasel, vice president of Smart Grid at Schneider Electric, said that the argument that utilities or private organizations lack the expertise to set up microgrids no longer holds. Schneider, for example, offers a service that designs the system, connects the various sources of power and provides the technology to operate it.

That service provides a “bespoke utility” for customers, Mr. Feasel said. He said there is “nothing standing in the way” of using those microgrids in California, except that regulated utilities like PG&E rely on the public utility commission to allow spending on such projects and create regulations to make the approach viable. The state commissions are often reluctant to make those outlays, Mr. Feasel said.

“Which is why the real innovation is happening outside the utility structure,” Mr. Feasel said.

The California Public Utilities Commission did not respond to a request for comment.

K.R. Sridhar, the chief executive of Bloom Energy, a company based in Silicon Valley that makes fuel cell-based microgrids, called them a “homegrown technology” in California.

“This is a technology that has to be adopted in California to save property and the lives of people,” Mr. Sridhar said.

“In spite of that, political leadership and the regulatory framework is not enabling this,” Mr. Sridhar said. “The people of California have a right to be upset at its leadership and demand better solutions, because they exist.”

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