For former insiders at some of the several hundred banks that collapsed during the financial crisis and in its aftermath, a day of reckoning has arrived.

The Federal Deposit Insurance Corp. has told dozens of former bank officers and directors that it has drawn up lawsuits accusing them of misdeeds such as fraud and breach of fiduciary duty. The federal agency is seeking damages to help offset losses in the nation’s deposit insurance fund.

It’s time, the FDIC warns these officials, to sit down and work out settlements — or head to court to decide the matters there.

The letters being sent by the agency are “very detailed,” said Jeffrey A. Tisdale, a Los Angeles lawyer for former officials of five banks targeted by the agency.

“I mean eight to 10 single-spaced pages of purported misdeeds,” he said.

The showdowns follow FDIC probes that typically take well over a year.

“We’re only doing this after careful investigation. We don’t bring suit every time a bank fails,” said Richard Osterman, the FDIC’s acting general counsel.

The FDIC board has authorized suits seeking to recover more than $2 billion from more than 80 former bank officials, up from about 50 a month ago, Osterman said. The number could multiply as the agency works through its investigative backlog.

The agency could end up suing or settling with former insiders of about one-quarter of the more than 300 banks that have failed since the start of 2008, officials say.

“This is only the first wave,” Tisdale said. “I’ve got my next five-year professional plan laid out pretty well.”

Although the FDIC says it will try to settle the cases, officials expect to file a significant number of suits. Criminal charges could result in a few cases.

“We are investigating [criminal] bank fraud and related cases in many different parts of the country, including in California,” said Fred Gibson, deputy inspector general at the agency.

So far only two civil suits have been filed. The first, filed in July, accuses four executives of Pasadena’s defunct IndyMac Bank of negligence in granting construction and development loans that the suit says were unlikely to be repaid. The defendants are contesting the suit, which seeks $300 million in damages.

Last week, the FDIC sued 11 former insiders at defunct Heritage Community Bank in Glenwood, Ill. Calling the case “regrettable and wrong,” defense lawyers said in a statement that their clients, in failing to foresee the economic meltdown, were no different from Wall Street and the FDIC itself.

Tisdale concurs that the FDIC is going after people for failing to accurately predict the future.

“The economy is the real culprit here,” he said. “There was no way to plan for real estate values dropping 30% to 50% throughout California, Nevada and Arizona.”

But Darren Robbins, a San Diego lawyer who specializes in filing investment fraud suits, says the FDIC has plenty to work with just by looking at what banks said about their assets toward the end of the boom.

“It’s our belief that in places like Illinois, Georgia, California and Arizona there was an inordinate amount of game-playing with financial statements in ‘07 and ‘08,” said Robbins, whose firm has fraud suits pending against several casualties of the bust, including PFF Bancorp, the former parent company of Pomona’s PFF Bank & Trust, which failed in November 2008.

In targeting the former officials, the FDIC typically also has its eyes on insurance companies that would be on the hook for damages stemming from alleged misconduct by the bankers. In many cases, the FDIC formally gave notice of possible litigation months ago, just before the expiration of the relevant insurance policies, to ensure that the coverage would apply.

Some policies covering directors and officers don’t apply to actions by the FDIC. In such cases, the agency is going after bank officials only if they have sufficient assets to justify the expense and risk of litigation, Osterman said.

The FDIC’s litigation strategy borrows from a playbook the agency used after the savings and loan meltdown of about two decades ago. From 1986 through 1996 the FDIC recovered $5.1 billion from former insiders at failed banks and savings and loans, Osterman said. That’s a small fraction of the eventual cost of the S&L crisis.

scott.reckard@latimes.com
FDIC prepares to crack down on officials of failed banks

Google Inc.’s decision to give all of its 23,300 employees a 10% pay raise next year — and a $1,000 bonus to boot — is just the latest volley in what has become a full-fledged war for top Silicon Valley talent.

With engineers in short supply, technology companies are competing for employees who can write the software programs needed for new products and services. And they’re increasingly stealing them from one another.

Google is particularly vulnerable. The Internet search giant, long known for aggressively recruiting the smartest in the business, is under siege from Facebook Inc. and other competitors that are trying to lure them away.

A few weeks ago, Lars Rasmussen, the brainy co-founder of Google Maps and a six-year Google veteran, bolted for Facebook, joining more than 200 former Google employees who now work at the world’s most popular social networking service.

Facebook tapped its most persuasive pitchman to close the deal. Founder and Chief Executive Mark Zuckerberg personally wooed Rasmussen to move halfway around the world from his Google office in Sydney, Australia, to Facebook’s headquarters in Palo Alto.

Facebook could be “a once-in-a-decade type of company,” the Danish-born computer science engineer said in explaining his decision.

That kind of talk rankles Google executives, who think they run the hottest company in Silicon Valley.

With 2,000 employees, Facebook is a much smaller operation than Google. Even so, 1 in 5 employees can list “Google” somewhere on their resumes, including Chief Operating Officer Sheryl Sandberg and Executive Chef Josef Desimone, who prepares fresh meals for Facebook employees.

Facebook says its recruiters don’t target Google; they seek out top candidates wherever they work.

“For us, it’s just important to find the best talent,” said Thomas Arnold, Facebook’s director of recruiting, who himself hails from Google. “If it comes from Google, that’s great. If it comes from Hewlett Packard, that’s great. If it comes from a start-up you have never heard of, that’s great. If it’s a kid sitting in a basement in small town somewhere who has created something neat on the Web, that’s even better.”

The flight to Facebook is not a subject Google would discuss, though it did throw out a few counterpunches: Google’s attrition, it said, remains below the industry standard. It hires more people every 10 days than Facebook has recruited in all from Google. And when Google makes a counteroffer to its employees, 70% decide to stay at Google rather than leave for Facebook, the company said.

“Google is an attraction and training ground for incredible talent,” recruiter Paul Daversa said. “The question is: Can Google fill up on talent as fast as it’s losing it?”

The skirmish for talent is driving up compensation and prompting a flood of offers and counteroffers. In one case, Google countered an offer from Facebook to a software developer with a promise of a 15% bump to his $150,000 salary, a quadrupling of stock benefits and a $500,000 cash bonus to stay a year, according to people familiar with the situation. He still took off for Facebook.

Google is hardly alone as it tries to make itself as sticky as flypaper to prospective recruits and employees alike.

Despite California’s unemployment rate of 12.4%, tech job listings are up 62% year over year in Silicon Valley, which has shown 11 straight months of growth, according to technology and engineering career website Dice.com. On any given day, companies are trying to fill 4,600 jobs on Dice.com, up from 2,800 open positions last year.

That reflects the strength of Silicon Valley’s major tech companies, chiefly Google, Apple Inc. and Facebook. Google dominates Internet advertising, Apple rolls out one must-have gadget after another, and Facebook has taken flight with more than 500 million users.

Along with these companies, there are newcomers such as Zynga Gaming Network Inc., a San Francisco company that makes wildly popular social games on Facebook and elsewhere. Zynga added 800 of its 1,200 employees in the last year alone.

With strong demand for their products and services, Silicon Valley companies have plenty of money to shower on signing bonuses and retention incentives.

“We believe this trend will only accelerate in the next 18 months,” Patrick Pichette, Google’s chief financial officer, said on a call to discuss the company’s strong third-quarter results. “We strongly believe that the difference between the winners and the losers in our industry will be to a large extent determined by who can continue to attract and retain the very best people.”

Venture capitalist Marc Andreessen, whose firm helps the companies it invests in recruit engineers and other key employees, says the supercharged recruiting market is the “single hardest challenge in Silicon Valley.”

“A good engineer can easily have 10 job offers,” Andreessen said.

All the top companies are poaching from the same pool: sought-after workers with a prized mix of engineering chops, ingenuity and initiative.

They raid one another’s ranks, mine colleges and universities for promising prospects and jump at unusual opportunities to nab engineers. As soon as news broke this week that Ask.com was laying off 130 people, job offers started popping up on Twitter.

In September, Feross Aboukhadijeh, a computer science major at Stanford University, bet his roommate that in one hour he could create software that would search YouTube in real time. He lost the bet (it took him three hours) but YouTube Instant racked up 1 million users in 10 days, netting Aboukhadijeh a job offer from YouTube co-founder Chad Hurley. Aboukhadijeh, already an intern at Facebook, decided to take the job at YouTube while he continues his studies at Stanford.

As the behemoths duke it out, some fleet-footed start-ups are giving everyone a run for their money in the recruiting department.

Facebook is competing with companies started by its own employees such as Asana, Path and Quora. These spinoffs are snapping up their share of the brightest engineers by appealing to their entrepreneurial instincts.

“There is definitely stepped-up and accelerated pace and urgency around courting the name talent and the high-quality talent,” Daversa said. “He who courts best is going to win. You have to embrace a candidate with a big bear hug. If you blink, he’s gone.”

jessica.guynn@latimes.com
War heats up for top Silicon Valley talent

They’re called “floating cities,” massive cruise ships that resemble skyscrapers and offer all the amenities of high-end resorts — spas and casinos, Broadway shows and amusement parks, fine dining and luxury shopping.

But the Carnival Splendor also offers a cautionary tale about just how vulnerable these mega-ships can be. Left powerless by an engine fire shortly after embarking on a seven-day cruise to the Mexican Riviera, the Splendor is expected to be towed into port in San Diego late Thursday. If the ship cannot make sufficient speed under tow, it is possible it will be taken to Ensenada, company officials said.

An early morning fire in the generator compartment Monday knocked out several of the ship’s operating systems and left the nearly 4,500 passengers and crew members without air conditioning, hot food and telephone service. Even the flush toilets were down for a while.

With communications largely cut off, it’s unclear what kind of hardship passengers have had to endure. But Carnival Chief Executive Gerry Cahill acknowledged in a statement that passengers were dealing with an “extremely trying situation.”

“Conditions on board the ship are very challenging, and we sincerely apologize for the discomfort and inconvenience our guests are currently enduring,” he said.

The “gourmet delicacies” of the “Manhattan chic” Pinnacle Steakhouse were replaced by 70,000 pounds of bread, canned milk and other emergency supplies, which were flown from the North Island Naval Air Station at Coronado to the U.S. aircraft carrier Ronald Reagan and then helicoptered out to the Splendor, stranded 160 miles southwest of San Diego. The company is paying the military for the food and supplies, officials said.

“There are significant risks as these ships get bigger and bigger,” said Kendall Carver, president of International Cruise Victims. “This one held over 4,000 people. The new ones owned by Royal Caribbean hold over 6,000 passengers and 2,000 crew members, over 8,000 people. A fire on a ship like that would be disastrous.”

The Carnival Splendor experienced its problems relatively close to several major ports, making rescue possible in only a few days.

“If it was hundreds of miles out, and you had a fire that wasn’t suppressed, and you had rough weather, you’d have a complete disaster,” said Jim Walker, a Miami-based attorney who specializes in cruise line litigation.

Although the $40-billion cruise ship industry — and its vessels — has been growing, it has been dogged in the last decade with controversies over passenger health and safety. Carver helped start International Cruise Victims after his daughter, Merrian, disappeared while on an Alaskan cruise in 2004.

The organization has pushed for stiffer laws regulating the cruise ship industry; just four months ago, President Obama signed into law tougher new rules for reporting crimes at sea, improving ship safety and training staff to collect evidence of crimes. The changes will go into effect in 2012.

But the new law makes only passing mention of fire safety issues, even though “the most serious event that can happen on a cruise ship is a main space fire, which is what happened on the Splendor,” said Mark Gaouette, former director of security for Princess Cruises and author of the recently released “Cruising for Trouble.”

On a Navy ship, Gaouette notes, every person has a fire-fighting role, and the crew is trained constantly in how to respond to a fire. On a cruise ship, “two-thirds to three-quarters of the population are passengers. They become problems and liabilities in a major fire. They have to be shepherded to safe areas.”

Statistics are hard to come by for incidents on cruise ships, but Gaouette said the website cruisebruise.com lists eight major fires on cruise ships in the last five years, compared with just three in the previous seven years.

“As cruise ships become larger and their number increases on the high seas,” he said, “the threat of fire and other risks to passengers will increase proportionally.”

On the Splendor at 6:30 a.m. Monday, the 3,299 passengers were evacuated from their cabins and told to go to the ship’s upper deck. They were later allowed to return. By afternoon, the U.S. Coast Guard had dispatched three cutters and an HC-130 Hercules helicopter to the ship’s aid. The Mexican navy sent aircraft and a 140-foot patrol boat.

The Coast Guard has remained in contact with the ship throughout the ordeal, officials said. Whether the ship goes to San Diego or Ensenada, the company has promised to transport passengers back to Long Beach.

Miami-based Carnival Cruise Lines has promised a full refund for passengers and a complimentary future cruise equal to the amount paid for this voyage, which was scheduled to visit Puerto Vallarta, Mazatlan and Cabo San Lucas. The company, which along with its brands has 98 ships worldwide, announced that the Nov. 14 seven-day cruise from Long Beach to the same ports has been canceled.

“The safety of our passengers and crew is our top priority, and we are working to get our guests home as quickly as possible,” said Cahill of Carnival Cruise Lines. Carnival Corp. reported revenues of $13.2 billion in 2009.

A spokeswoman for the Cruise Lines International Assn. did not respond to requests for comment. The organization’s website says the U.S. Coast Guard calls cruising “one of the safest modes of transportation, and the industry is constantly striving to improve its safety procedures. Over the past two decades, an estimated 90 million passengers safely enjoyed a cruise vacation.”

But that is little comfort to Lynnette Hudson, whose father died of smoke inhalation during a fire on the Star Princess, which is operated by Carnival, in 2006. It was his first cruise, she testified to Congress, and he was celebrating his 72nd birthday.

Hudson pushed for the more stringent standards that were signed into law this summer and is still fighting for stiffer laws. “I think if there’s a major fire on a cruise ship, they’re not prepared,” she said in an interview. “They don’t have sufficient training.”

maria.laganga@latimes.com

tony.perry@latimes.com

Times staff writer Richard Marosi contributed to this report.

Stranded cruise ship offers lesson in huge vessels’ vulnerabilities

President Obama, challenged by Indian students Sunday to explain why the United States had not labeled Pakistan a terrorist state, defended his administration’s efforts to help the Pakistani government root out extremism and urged Indians to remember their own stake in promoting their longtime rival’s stability.

Obama’s call to India for a gradual rapprochement with Pakistan, made during a sometimes lively town hall-style meeting at St. Xavier’s College in the Indian city of Mumbai, is likely to be repeated at a speech Monday to the Parliament in New Delhi.

Despite the pointed exchange over Pakistan, Obama’s day with students included a session of impromptu dancing by the president and the first lady that offered personal images to balance the generally serious and carefully scripted elements in the Obamas’ first visit to this nation.

A day earlier, Obama met with survivors of the 2008 terrorist attack on Mumbai by Pakistani extremists, but he was careful to avoid mentioning Pakistan.

On the second day of a 10-day Asia trip, Obama was clearly ready for more direct engagement on the matter. “I must admit I was expecting it,” he said, eliciting laughter from the college audience assembled outdoors on a sunny afternoon.

Obama said the U.S. approach toward Pakistan on the issue of terrorism has been “to be honest and forthright … to say we are your friend, this is a problem and we will help you with it, but the problem has to be addressed.”

He said he was “absolutely convinced that the country that has the biggest stake in Pakistan’s success is India.”

“So my hope is, is that over time trust develops between the two countries,” he said, “that dialogue begins — perhaps on less controversial issues, building up to more controversial issues — and that over time there’s a recognition that India and Pakistan can live side by side in peace and that both countries can prosper.”

India was partitioned to create Pakistan at the time of independence from Britain in 1947, and the two neighbors have fought three major wars since.

Although Indian students also grilled him about his views on jihad and Afghanistan policy, as well as his take on the teachings of Mahatma Gandhi, Obama kept at least a part of his message focused on the main aim of his second extended trip to Asia: opening up markets to create job opportunities for Americans.

Over the weekend, he spoke about the “enormous untapped potential” in trade, calling on India to lower barriers in everything from retail imports to telecommunications. On Sunday, he told students that Americans were frustrated with the U.S. economy and how the midterm election results had forced him to make “some midcourse corrections and adjustments.”

“So I want to make sure that we’re here because this will create jobs in the United States and it can create jobs in India,” Obama said. “But that means that we’ve got to negotiate this changing relationship.”

Some listeners were skeptical, aware that Obama and other Democrats often speak disapprovingly of U.S. companies that “ship jobs overseas.” India has long been a favored destination for American outsourcing of data processing, call centers and back office functions.

“It is offensive,” said Lopa Mullick, an owner of an events-management company who attended Obama’s session at St. Xavier’s College. “It hurts us…. You’re not looking at all the opportunities that India has created for the U.S., at the economic benefits both sides get.”

Still, the young entrepreneur said she came to listen to Obama because she believes he can “shift the focus” and that he may actually want to do so.

During an earlier visit with schoolchildren, Michelle Obama broke out into a lengthy dance that dominated TV and inspired local newspaper headlines such as “When Michelle Got Into the Groove.”

The president himself showed off his footwork as schoolchildren enticed him to join the first lady in a traditional Indian dance during a Diwali celebration. It inspired some low-key moves, though mostly unrelated to the elaborate steps everyone else was doing.

cparsons@latimes.com

don.lee@latimes.com

Parsons reported from Mumbai and Lee from Washington.
Obama fields tough questions from Indian students

Jerry Brown returned to Sacramento on Thursday as California’s next governor, forging relationships and crunching numbers as he anticipates his first budget, which will set the tone for a new administration that he says will be characterized by his trademark frugality.

The former two-term governor has little time. He must present a spending plan within days of taking office in January, when the state will probably be grappling with a new deficit as well as with the new restrictions that voters placed on how revenue can be raised and used. Throughout his campaign, Brown offered few specifics on how he would balance the state’s books, focusing instead on an “exhaustive” collaborative process that he says will include all stakeholders, including labor unions and business.

The spending plan is typically sent to the printer in late December, meaning Brown won’t even be governor by the time his initial draft must be finished. Brown said his transition team is working with the staff at the state Department of Finance.

On Thursday, Brown met with the state budget director, Ana Matosantos. Addressing reporters, Brown described the meeting as “very sobering” and vowed to start working full-time on a budget after he returns from a weeklong vacation.

“I think the problems we face are as bad as anyone could imagine, and it’s going to take a lot of very tough decisions,” Brown said. “It’s very daunting. It’s certainly as bad as it’s ever been, and it’s going to take people in both the Democratic Party and the Republican Party” to produce a viable budget.

He added: “The people of California, they’ll have a chance to see in great depth what it is we’re doing and what kind of money we have to do it and what the gap is. And it’s certainly considerable.”

By next Tuesday, Brown’s transition team will probably be sitting in on a key meeting that takes place at this time every year, when leading state economists come to Sacramento to offer revenue projections. The governor’s office uses those projections to come up with its own forecasting model, on which the proposed budget is based. One of the economists, Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto, said all the early signs suggest no major improvements.

“The budget will include some very difficult revenue numbers,” he said. “We’ll be back in the soup.”

Legislative leaders have estimated that the state will face a deficit of at least $12 billion.

Brown flew with Gov. Arnold Schwarzenegger to Sacramento on Thursday from San Diego, where the two attended the funeral of a police officer. Later, Brown worked the halls of the Capitol, meeting with Matosantos, Assembly Speaker John P

There were the usual kind words and olive branches extended on Wednesday. But nothing could hide the fact that the two parties have deep and abiding differences on nearly every issue facing Congress. The composition of the House and Senate may have changed, but not Washington: The place may be more polarized than ever.

That could make it exceedingly difficult to accomplish anything of great magnitude between now and the next presidential election in November 2012.

The clearest indication of the growing partisan gap was Tuesday’s rout of the Blue Dog caucus, a group of moderate and conservative Democrats who urged the party to adopt a more business-friendly and fiscally conservative agenda. Fewer than half of its 54 members will be returning next year after incumbents were ousted in Pennsylvania, Ohio and a few Democratic pockets of the Deep South. Their absence will likely push the 190 or so remaining House Democrats even further left.

On the Republican side, the victory of dozens of insurgents backed by the “tea party” movement means the emboldened GOP majority will be even more conservative and confrontational than the one that harried President Obama over the last two years.

These lawmakers, and the legion of activists who plan to monitor their performance, have called for drastic changes, including eliminating the Department of Education, privatizing parts of Social Security and repealing the healthcare law just now starting to take effect.

After the presidency, the most difficult job in Washington may soon fall to Rep. John A. Boehner of Ohio, the Republican leader who will likely be the next House speaker. He must balance an agenda that satisfies his fervent tea party caucus without scaring off the voters — politically independent, largely nonideological — who delivered the GOP its big win Tuesday.

It was something Newt Gingrich, the House speaker after the last big GOP landslide in 1994, failed to manage when he led a similar class of zealously partisan freshmen. President Clinton, who had to argue after the so-called Republican Revolution that he was still relevant, romped to reelection just two years later.

Extensive polling, including thousands of voter interviews conducted Tuesday, shows that neither party is well regarded. The election was the third in a row in which 20 or more House seats changed hands, a level of upheaval unseen in more than half a century; these days, voters seem willing to discard unwanted politicians like so much used tissue.

But that hasn’t stopped both sides from claiming to speak for a majority of Americans. A mandate is in the eye of the beholder, and Jenny Beth Martin, national coordinator of the Tea Party Patriots, an online conservative network, seemed to speak for many when she suggested compromise was a good thing — so long as others were doing the compromising.

“We hope that rather than having the gridlock, that the House and Senate will work together to find a way to be responsible with our money again and the other side will move to the center,” Martin said. “Because our side is the center.”

Boehner and Senate Majority Leader Harry Reid of Nevada, who may soon be dueling each day on Capitol Hill, said much the same thing. Both nodded toward the notion of compromise, with qualification.

“We hope President Obama will now respect the will of the people, change course and commit to making the changes they are demanding,” Boehner said. “To the extent he is willing to do this, we are ready to work with him.”

Reid, fresh off reelection in Nevada, said “the time for politics is now over.” He then suggested Republicans “must take their responsibility to present bipartisan solutions more seriously. Simply saying ‘no’ will do nothing to create more jobs, support our middle class and strengthen our economy.”

None of which bodes well for a new era of comity and bipartisan cooperation.

“If you’re a betting person, I would bet on less rather than more being accomplished in Washington,” said Geoff Garin, a longtime Democratic strategist.

If politicians look to the people for guidance, as they presumably should, they are likely to come away confused.

Voters say they hate gridlock, but many also seemed to hate the prolific legislative output of the Obama administration and the Democratic majorities in the House and Senate. Asked what lawmakers should make their top priority in the next Congress, nearly 4 in 10 said reducing the federal deficit. A like number said spending money to create jobs, a move that would increase the deficit. (Two in 10 said cutting taxes, which would also increase the debt.)

On a more fundamental level, voters sent similarly contradictory signals. Nearly 8 in 10 said in a Pew Research poll that lawmakers’ unwillingness to work together was a major problem. But in a subsequent survey, nearly half said they admired a politician who sticks to principle rather than compromising.

Clearly, voters are conflicted. More than ever, they have a government in Washington to match their mood.

mark.barabak@latimes.com

kathleen.hennessey@latimes.com
Midterm election’s big loser is the political center

GOP gubernatorial nominee Meg Whitman paints rival Jerry Brown as a machine Democrat who as governor decades ago spent big and coddled liberal interests while pursuing an expansive role for government. Brown says he was a deficit hawk who deftly managed the state’s finances and a world-class educational system.

Neither of the conflicting portrayals, featured in the battle the two have been waging on California’s airwaves, is exactly how those eight years went.

Brown disdained political convention and protocol and refused to govern as a run-of-the-mill liberal. He tangled with the Legislature constantly, though it was controlled by fellow Democrats: Lawmakers overrode his vetoes 12 times. And although his early approval rating hit 85% — higher than Ronald Reagan’s had reached — Brown ultimately tripped over his famous frugality, irritating voters by squeezing local schools, delaying road construction and neglecting the growing state university system.

“He had his own ideology, and it was one we had never seen before,” said Paul Priolo, who was the Assembly Republican leader during part of Brown’s governorship. “He was different.”

Brown had many successes, and several of his ideas — carpool lanes, satellite communications for California, computers in classrooms —- are commonplace now. He was the skilled dealmaker who, at 37, negotiated the landmark farm labor agreement that ended the nationwide produce boycotts. He protected some of the state’s most pristine lands and crafted energy policies that sowed the seeds of a green economy long before it was stylish.

But he was also the distracted intellectual who dawdled as soaring property taxes began to crush homeowners, spurring a ballot box revolt. He was paralyzed by the Medfly crisis and criticized for being inattentive to schools.

He recruited a dynamic group of Californians to run the government, spurning the usual insiders and filling many prominent positions with women and minorities for the first time. Some of them helped usher in such pioneering policies as a 25% reduction in air pollution and pressured Detroit for more environmentally friendly cars.

Others flailed. Rose Bird, the ardent death penalty opponent with no judicial experience whom Brown appointed as chief justice of the Supreme Court, was ultimately rejected by a 2-1 margin in a regularly scheduled retention vote.

Lawmakers were inclined to dislike Brown from the start. He came into office on the heels of a successful initiative campaign to ban lavish gifts from lobbyists to politicians. Lawmakers had earlier rejected Brown’s “two hamburgers and a Coke” proposal, inspired by his view that that’s about all a lobbyist should be allowed to buy a lawmaker.

The state Senate leader once ordered the sergeant-at-arms to halt an impromptu Brown press conference in Senate chambers and threatened to have state police forcibly evict him. By Brown’s second term, his bill vetoes were overridden so often that it appeared lawmakers were doing it for sport. No governor since has been overridden.

Sometimes it seemed like Brown was winging it — as he appears to be these days on the stump. His distaste for plans and pamphlets, policy agendas and schedules dates back decades.

“Often we have to just let things emerge,” Brown said in an interview with Playboy in 1976. “If you’re interested in agendas, you might read the inaugural speeches of the last five governors. They say much the same thing: Down with crime, unemployment and taxes.”

Brown had kept his inaugural speech to seven minutes. He talked about unemployment. Then he took a group to Man Fook Lo, a Chinese restaurant in the produce district of Los Angeles. No inaugural ball.

But liberals attracted by Brown’s progressive outlook and family legacy of big projects — his governor father, Pat Brown, built universities and freeways — were disappointed. Brown’s frugality went beyond his rented apartment with a mattress on the floor; he declared an “era of limits” and tightened the state belt even as a record state surplus mounted.

Former Gov. Gray Davis, Brown’s first chief of staff, said Brown suggested senior government staffers save taxpayers money by staying with friends when traveling instead of in hotels.

“His Department of Finance would hide money from us,” said Richard Robinson, a Democrat who represented the Santa Ana area in the Assembly. “It was a major source of frustration.”

Some programs suffered. California slipped from 18th to 31st in the nation, by some measures, in per-pupil school spending. Brown suggested that cutting off some funds for schools would inspire reform. Instead, the school day was shortened, classrooms grew crowded and teachers’ salaries fell behind those in other states.

At the state’s universities, faculty salaries were frozen. Brown said highly compensated state employees such as university professors were deriving “psychic income” from the interesting nature of their work. He vetoed raises for other state employees and curbed spending on transportation, leaving much of the freeway system, a Pat Brown legacy, to deteriorate.

The junior Brown did sign off on construction of the 105 Freeway. But mostly he focused on alternative transportation. He appointed Adriana Gianturco, a 36-year-old Bostonian with no background in highway engineering, to run Caltrans. She had opposed the 105 Freeway, rejected plans for another expressway and transformed the fast lanes on the Santa Monica Freeway into “diamond lanes” for carpoolers.

As young governor, Brown went his own way

The U.S. economy continued to plod along at a sluggish pace in the third quarter, not enough to generate momentum or bring down the nation’s high jobless rate.

The nation’s gross domestic product, or the value of all goods and services produced inside U.S. borders, grew at an annualized rate of 2% in the July-to-September quarter, the Commerce Department said Friday.

That was a tad higher than the 1.7% GDP growth in the second quarter, but overall still paints a picture of a lackluster economy that expanded at a 3.25% annual rate in the second half of last year coming out of the recession, only to see a slowing since spring.

One positive sign was a pickup in consumer spending in the latest quarter. Inflation-adjusted personal consumption increased 2.6%, up from 2.2% in the second quarter, thanks largely to gains in expenditures for housing and other services.

Business investments also contributed positively to the third-quarter GDP, although the rate of increase in spending for equipment and software fell sharply to 12%, from nearly 25% the prior quarter. Government spending also added to the growth, but depressed home-building and the nation’s trade deficit continued to be a drag on the overall economy.

In addition, the latest quarter was boosted by a stronger buildup in inventories, which could curb production and overall economic growth in the coming months, especially if the holiday shopping season turns out poorly.

The overall 2% change in GDP was right in line with analysts’ forecasts, and won’t change expectations that the Federal Reserve on Wednesday will launch a new round of government bond purchases to drive down long-term interest rates and stimulate economic activity.

Before Friday’s report, economists were generally projecting somewhat stronger growth for the fourth quarter and heading into next year. Expectations of the Fed’s likely stimulus program already has pushed down the value of the dollar, which should bolster U.S. exports. Stock prices also have improved in the last quarter, giving consumers a little more confidence.

Uncertainties about the expiring Bush administration’s tax cuts loom as a potential negative, but analysts say even that could provide a lift in the next two months as people move some of their planned spending for 2011 to this year because of the risks of higher taxes.

don.lee@latimes.com
GDP rises slightly to 2% in sign that economy remains sluggish

Weeks before the Deepwater Horizon explosion, oil company BP and subcontractor Halliburton were aware of test results showing that the cement mixture designed to seal the well was unstable — but they used it anyway, President Obama’s special commission investigating the environmental disaster reported Thursday.

The findings shed new light on troubles with the cement job on BP’s Macondo well in the Gulf of Mexico, which exploded April 20, killing 11 workers and causing the largest offshore oil spill in U.S. history. The cement is supposed to secure the well pipes and keeps oil and gas from flowing up the well.

Legal experts said the information could bolster plaintiffs’ cases in the multitude of spill-related lawsuits by helping to show that BP acted with gross negligence leading up to the spill. This could, among other issues, greatly increase the multibillion-dollar penalties BP might have to pay for violation of the Clean Water Act.

“There’s no question that it’s important evidence,” said Charlie Tebbutt, an attorney for the Center for Biological Diversity, which has filed a lawsuit seeking $19 billion under the Clean Water Act. “It serves to confirm the previous reports of significant problems with the exploration and production of the well.”

The information was included in a letter to Obama’s commission by Fred. H. Bartlit Jr., its chief counsel.

David Uhlmann, a law professor at the University of Michigan who formerly headed the Justice Department’s Environmental Crimes Section, said the findings make it appear more likely that Justice officials will file criminal charges not only against BP and Transocean Ltd., the rig’s owner, but also against Halliburton, the Texas oilfield services giant once headed by former Vice President Dick Cheney.

“There have been questions all along about the integrity of the cement job, and today those questions loom larger and are closer to being answered,” Uhlmann said. “And those answers are not good ones for Halliburton.”

In the letter, Bartlit said that his team recently asked Halliburton to turn over samples of the cement materials like those used at the well. The materials were tested by Chevron employees at a Houston lab. The employees were “unable to generate stable foam cement” from the materials, meaning the cement would not be strong enough to keep the well sealed.

Bartlit then asked Halliburton to turn over all of the tests it had run on the mixture.

Those documents showed that Halliburton had conducted four “stability tests” of the mixture. The first two were run in February 2010 using a slightly different recipe than the one eventually used at the well. Both of these tests indicated that the mix was unstable.

Halliburton sent results from only one of those tests to BP in an e-mail March 8.

“There is no indication that Halliburton highlighted to BP the significance of the foam stability data, or that BP personnel raised any questions about it,” Bartlit wrote.

Two more tests were conducted by Halliburton in April. The first test, conducted about seven days before the blowout, again showed the mix to be unstable, although Bartlit said it may have been improperly conducted. These results were reported internally at Halliburton, Bartlit said, “though it appears that Halliburton never provided the data to BP.”

Bartlit said Halliburton apparently began a fourth test, and after modifying the testing procedure, found the cement to be stable.

“We are not yet certain when Halliburton reported this data internally or whether the test was even complete prior to the time the cement job was poured at the Macondo well,” he wrote. “Halliburton reported this data to BP after the blowout.”

Bartlit said that because BP did not have the test results, “the cement job may have been pumped without any lab results indicating that the foam cement slurry would be stable.”

BP officials did not return a call for comment Thursday. A Halliburton spokeswoman said company officials were reviewing the report.

Late Thursday, Halliburton issued a statement. Its February tests were of a different slurry mixture, the company said, and its first April test was “irrelevant because the laboratory did not use the correct amount of cement blend. Furthermore … BP was made aware of the issues with that test.”

Halliburton said its second April test used the agreed-upon mixture and showed it was stable. But BP changed the mixture that was actually used in the well, Halliburton said, and “a foam stability test was not conducted” on the new formulation.

The cement job was not the only problem that plagued the well on the evening of April 20, and Bartlit did not say that it was the only cause of the blowout.

The blowout preventer — a massive device that was supposed to shut off the well off in case of a dangerous geyser of oil and gas — also failed. Other human errors have been alleged as well. On the day of the blowout, BP canceled a test called a “cement bond log” designed to discover cement defects, saving more than $100,000.

Jesse Gagliano, a Halliburton technical advisor, also told federal investigators that BP risked causing a “severe gas flow problem” when they decided to use fewer devices called “centralizers” rather than the 21 he recommended.

Critics of BP and its partners on the Macondo project jumped on the findings to demand greater oversight of the companies involved in the accident and of the oil industry. Rep. Edward J. Markey (D-Mass.), chairman of the House Energy and Environment Subcommittee, said the counsel’s findings underscored the need for BP’s new chief executive, Bob Dudley, to appear before Congress, which he has recently declined to do.

“The fact that BP and Halliburton knew this cement job could fail only solidifies their liability and responsibility for this disaster,” Markey said in a statement. “We now know what BP and Halliburton knew, and when they knew it. And now we know they did absolutely nothing about it.

The report’s release sent Halliburton shares plunging 16%, to less than $30 in New York trading, but it recovered somewhat to close at $31.68, down $2.74, or 8%. BP’s American shares, however, closed at $40.60, up 1.25%.

Richard.fausset@latimes.com

Nbanerjee@tribune.com

Fausset reported from Atlanta and Banerjee reported from Washington. Rong-Gong Lin II contributed to this report from Los Angeles.
Tests warned of cement problems before well’s blowout

The automaker — which unlike General Motors Co. and Chrysler Group avoided bankruptcy reorganization last year — benefitted from both cost cutting and top-line performance, gaining U.S. market share and selling vehicles for higher prices.

“Overall, we are doing better than we expected through the first nine months of the year,” said Alan Mulally, Ford’s chief executive, “and we expect to deliver solid profits in the fourth quarter and for the full year.”

Ford has reduced its level of sales-incentive spending at the same time buyers are adding options to their cars and spending more, according to Edmunds.com, the auto information company. Edmunds.com estimated that buyers paid an average of $30,636 for a Ford in September, slightly higher than a year ago and up 10% from five years ago.

“For a long time, they weren’t really in the car market very strongly, depending mostly on trucks and SUVs. Now they have good cars, and the car market is where the action has been in recent years,” said Jessica Caldwell, an analyst with Edmunds.com.

Ford’s profit equaled 43 cents a share and compared with earnings of $1 billion, or 29 cents a share, in the same period a year earlier. It was the automaker’s sixth consecutive profitable quarter. Revenue fell to $29 billion from $30.3 billion a year earlier, before the company sold off Volvo, the Swedish automaker, to focus on its core Ford and Lincoln brands. Year to date, the company has earned $6.4 billion.

In early trading, Ford shares rose 7 cents to $14.22.

“This was another strong quarter,” said Mulally. “The key drivers for improvement in 2011 will be our growing product strength, a gradually strengthening economy and an unrelenting focus on improving the competitiveness of all our operations.”

On Friday, Ford plans to use some of the cash it is generating to pay off the remaining $3.6 million it owes to the United Auto Workers union retiree healthcare trust, which will save it about $330 million in annual interest expenses. The automaker borrowed heavily to stay afloat during the recession and is working to pay back those loans.

The payment will reduce the company’s total debt to $22.8 billion, a net reduction of $10.8 billion from the end of 2009. Ford said it expected its cash holdings to be equal to its total debt by the year’s end, earlier than it previously anticipated. Ford also plans a stock offering that would convert $3.5 billion in debt to common stock during the fourth quarter.

“We are clearly ahead of where we thought we would be on improving our balance sheet and repaying our loans,” Mulally said. “This allows us to reduce our annualized interest payments by over $800 million.”

Ford’s American operations had an operating profit of $1.6 billion, compared with $300 million in the same period a year earlier. The company was profitable in South America and in Asia, driven by gains in China and India, but lost money in Europe. The company said it expected its European operations to become profitable in this year’s fourth quarter.

Much of the automaker’s success is coming from a string of successful new products, such as the Fusion sedan and the Edge SUV. Truck sales, especially government and business fleet sales of the F-150 pickup also added to the quarterly profit, Caldwell said.

Ford’s latest vehicles have been well received by consumers.

“It’s much better than the Ford of five years ago,” Caldwell said.

Ford sales have risen 21% to 1.4 million vehicles through the first nine months of this year. That’s more than double the overall industry gain. Its share of the U.S. market has grown to 16.7% from 15.2% — the largest jump of any automaker this year, according to Autodata Corp.

The automaker has been able to restructure so it can operate profitably with what are considered historically low auto sales numbers.

There are some signs of a more robust rebound in the U.S. auto market, which was up about 10% through the first nine months of the year.

Mark Fields, Ford’s president of the Americas, said Monday that U.S. auto sales hit an annualized pace of about 12 million vehicles in October, its best rate so far this year. Automakers will report their October sales results next week.

jerry.hirsch@latimes.com

Ford third-quarter profit soars 69% over a year ago