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Monthly Archives: June 2012

NOTHING about 1209 North Orange Street hints at the secrets inside. It’s a humdrum office building, a low-slung affair with a faded awning and a view of a parking garage. Hardly worth a second glance. If a first one.

But behind its doors is one of the most remarkable corporate collections in the world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses.

Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox.

What attracts these marquee names to 1209 North Orange and to other Delaware addresses also attracts less-upstanding corporate citizens. For instance, 1209 North Orange was, until recently, a business address of Timothy S. Durham, known as “the Midwest Madoff.” On June 20, Mr. Durham was found guilty of bilking 5,000 mostly middle-class and elderly investors out of $207 million. It was also an address of Stanko Subotic, a Serbian businessman and convicted smuggler — just one of many Eastern Europeans drawn to the state.

Big corporations, small-time businesses, rogues, scoundrels and worse — all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks. Federal authorities worry that, in addition to the legitimate businesses flocking here, drug traffickers, embezzlers and money launderers are increasingly heading to Delaware, too. It’s easy to set up shell companies here, no questions asked.

“Shells are the No. 1 vehicle for laundering illicit money and criminal proceeds,” said Lanny A. Breuer, assistant attorney general for the criminal division of the Justice Department. “It’s an enormous criminal justice problem. It’s ridiculously easy for a criminal to set up a shell corporation and use the banking system, and we have to stop it.”

In these troubled economic times, when many states are desperate for tax dollars, Delaware stands out in sharp relief. The First State, land of DuPont, broiler chickens and, as it happens, Vice President Joseph R. Biden Jr., increasingly resembles a freewheeling offshore haven, right on America’s shores. Officials in other states complain that Delaware’s cozy corporate setup robs their states of billions of tax dollars. Officials in the Cayman Islands, a favorite Caribbean haunt of secretive hedge funds, say Delaware is today playing faster and looser than the offshore jurisdictions that raise hackles in Washington.

And international bodies, most recently the World Bank, are increasingly pointing fingers at the state.

Of course, business — the legal kind — has been the business of Delaware since 1792, when the state established its Court of Chancery to handle business affairs. By the early 20th century, the state was writing friendly corporate and tax laws to lure companies from New York, New Jersey and elsewhere. Most of the businesses incorporated here are legitimate and many are using all legal means to reduce their tax bills — something that most stockholders applaud.

President Obama has criticized outposts like the Caymans, complaining that they harbor giant tax schemes. But here in Wilmington, just over 100 miles from Washington, is in some ways the biggest corporate haven of all. It takes less than an hour to incorporate a company in Delaware, and the state is so eager to attract businesses that the office of its secretary of state stays open until midnight Monday through Thursday — and until 10:30 p.m. on Friday.

Nearly half of all public corporations in the United States are incorporated in Delaware. Last year, 133,297 businesses set up here. And, at last count, Delaware had more corporate entities, public and private, than people — 945,326 to 897,934.

One Delaware company was used last year to make an anonymous $1 million donation to Restore Our Future, a super PAC that favors Mitt Romney for president. Restore Our Future ultimately disclosed that the money came from a former Bain Capital executive. The Romney campaign declined comment, and Restore Our Future did not return calls.

Phillip Hoskins did, but not to work out. He went to find clients, and to join the ranks of personal trainers, one of the fastest-growing American occupations.

“I knew I didn’t want a desk job,” said Mr. Hoskins, of Louisville, Ky., who became a personal trainer after being let go, after 17 years, from a middle-management position at a car repair shop in December. “I’m pretty fit for 51 years old, and I knew I could do something with that.”

Once stereotyped as the domain of bodybuilders and gym devotees, personal training is drawing the educated and uneducated; the young and old; men and women; the newly graduated, the recently laid-off and the long retired.

From 2001 to 2011, the number of personal trainers grew by 44 percent, to 231,500, while the overall number of workers fell by 1 percent, according to the Labor Department.

It is no wonder that so many Americans are trying to transform a passion for fitness into a new career.

Personal training requires many of the skills and qualities of the new typical middle-class American job: it is a personal service that cannot be automated or sent offshore, that caters to a wealthier client base and that is increasingly subsidized (in this case, by employers and insurance companies).

But as people with such jobs have found, the pay is low. Unlike the clock-in-and-clock-out middle-class jobs of the past, personal service occupations have erratic hours, require entrepreneurial acumen and offer little job security.

“The kind of job where you come in and work 9 to 5, and where someone tells you what to do all day is becoming scarcer and scarcer,” said Erik Brynjolfsson, an economics professor at M.I.T. and co-author of “Race Against the Machine,” a book about how automation is changing the job market. “The kind of job where you have to hustle and hustle and where you’re not sure whether you will have enough clients next month, where you have less job security, is becoming much more common.”

For personal trainers, the median hourly wage is less than $15. Because they have to find clients and set up their businesses, trainers must be flexible, adapting to client schedules and physical abilities, as well as the availability of exercise machines and accommodating weather.

They must also be able to engage with all sorts of personalities — precisely the skills that help keep these jobs around while others are replaced by algorithms.

“Knowing how to keep someone motivated and how to keep a connection are skills humans have learned and evolved over hundreds of thousands of years,” Professor Brynjolfsson said. “A robot can’t figure out whether you can do one more push-up, or how to motivate you to actually do it.”

Donna Martin, 69, of Orlando, Fla., recently became a personal trainer after having been retired for 25 years. She mostly works with clients over age 60. “I think my age actually helps me get clients,” she said.

Another reason for the surge in personal trainers — as well as home health aides and other midskill service occupations — is that the barriers to entry are low.

The industry is mostly unregulated, with private organizations rather than governments issuing certifications. Once upon a time, some certification organizations required bachelor’s degrees and intensive study; now dozens of groups offer ever cheaper and easier certifications to serve the fitness boom.

The fitness industry has been growing steadily in good economies and bad, with American health clubs adding about 10 million members since the recession officially began in 2007, according to the International Health, Racquet & Sportsclub Association.

Facing a sea of options, Mr. Hoskins chose an online test that cost $60 by Action, an organization founded in 2008. Action is not accredited by the National Commission for Certifying Agencies, the group the industry uses to vet such certifications, though, and he could not find a local gym that recognized the credential.

He is now studying for a more in-depth test from an older group, the American Council on Exercise, and trying to train clients on his own until he can qualify to work for a gym. The study materials and test cost about $500.

Some older certifying organizations favor more regulation because they see the industry maturing and fear that increasing numbers of new trainers with less experience will dilute the reputation of trainers in general.

“We are really trying to professionalize this industry, and state-by-state licensure may be what we need,” said Mike Clark, the chief executive of the National Academy of Sports Medicine and a licensed physical therapist. “Right now, the gyms really don’t want that, though, because they’re already having trouble finding enough trainers with just the current system.”

In a country with a 35.7 percent obesity rate, potential customers are plentiful, at least in theory.

People who tried to watch Netflix on Friday evening saw nothing but red. Instagram users couldn’t upload or view photos. And a number of other Web sites and services were knocked offline. Storms had disrupted Amazon Web Services, which stores vast amounts of data for companies worldwide.

The problems first began around 11 p.m., when a roiling storm caused numerous electrical failures on the East Coast that left two million people without power and at least six people dead.

Late Friday, on the company’s status blog, Amazon said it was “investigating elevated error rates impacting a limited number” of customers. The company noted that the failure had happened at a server facility in Virginia and it was because of the lighting storm in the area.

While Amazon continued to update its status blog, information on the troubles remained relatively sparse throughout the evening.

As of Saturday morning, the company said it had managed to get some services back online, but was still working to resolve a number of remaining shutdowns. ”We are continuing our recovery efforts for the remaining EC2 instances,” the company wrote at 11:38 a.m. on the status blog. EC2 is the name of the server system used for storage.

Amazon did not immediately respond to a request for details about the problems and when it expected all the servers would be back to normal.

Many of the companies that use Amazon Web Services were left waiting for updates, too, passing along snippets of information to their customers.

Instagram, the photo-sharing service, said on Twitter, “Due to severe electrical storms, our host had a power outage, no data is lost – we’ve been working through the night to restore service.” Instagram users reshared the message more than 31,000 times.

Netflix and Pinterest, which were both completely offline for most of the evening, also took to Twitter to tell users the status of the failure. Foursquare was partly affected and updated its own status blog to tell customers.

Most of these public-facing sites were back online by Saturday morning, although some services seemed spotty.

As a number of services, and customers, have come to rely on Amazon for storage, these shutdowns leave companies and analysts questioning the viability of cloud-based storage for businesses — specifically when many companies don’t have a fallback option as a backup.

Amazon has suffered repeated failures in recent months. The company was offline from a major shutdown in June. In April areas of the company’s storage facility went down for several days.

But last week, I had a different experience. Stressed out, on a deadline, I was frustrated to the point of uselessness and began to post a handful of items to Twitter and Tumblr. For a while, my mind and fingers wandered aimlessly around the Web. When I grew tired of this, I turned back to my assignment, completed it and turned it in. The entire detour took less than 10 minutes, and it seemed to make me more efficient.

Of course, the standard party line is that our focus and attention span are being whittled away by the never-ending barrage of services flooding our screens and feeds — and that this is a debilitating trend.

John Herrman, an editor at FWD, a tech site on BuzzFeed, says he’s developed a kind of tech neurosis from the frenetic race to keep up with e-mails, mobile e-mails, Twitter, Facebook, instant messaging, phone calls and text messages throughout the day.

“I, like so many people I know who work on computers, seem very inefficient,” he wrote in a recent post. “Even if my output is high, my input is astronomically higher. I’m never not looking sideways at what I’m doing, never not pulled to look at something else, never not reacting to whatever I’ve paused on.”

Most days, that’s my experience, too — but not always. In fact, sometimes I’ve found that losing myself in the Web can be invigorating. Instead of needing to turn off the noise of the Web, I often use it to calm my nerves so I can finish my work.

It seems that instead of fracturing my focus and splintering my attention span, digital distractions have become a part of my work flow, part of the process, along with organizing notes and creating an outline for each article I write. Perhaps it’s possible to master the demands on my attention by figuring out a way to juggle the multitude of apps and services that beg to be looked at, clicked on and answered.

If my brain is learning how to cope with distractions, is it possible that others are, too?

Of course, the consensus among scientists and researchers is that trying to juggle many tasks fractures our thinking and degrades the quality of each action. But understanding the plasticity of the brain, or its ability to adapt and reorganize its pathways, is still in its early stages.

Adam Gazzaley, a neuroscientist at the University of California, San Francisco, who studies the impact of interruption on performance and memory, says it’s possible that our brains are adapting to handle the many inputs of digital stimulation. He and his research team are using interactive video games to observe how the brain adapts to multiple tasks that increase in difficulty over time.

“We can train ourselves to get better,” he said. “We’re studying the plasticity of the brain so we can understand how abilities can improve.”

It may be that the brain — or some brains — can handle certain levels of multitasking and not others, he said. Surfing the Web and talking on the phone may not place the same demand on available cognitive resources as, say, cruising down the highway and sending a text message. It’s an area of research that scientists and psychologists are just starting to explore, he said.

“We’re pushing the brain to master switching between tasks,” he said. “But if abilities can actually improve, the question is, by how much?”

Some people have certainly developed their own coping mechanisms in this realm.

Steve Greenwood, an entrepreneur who works in Manhattan, says he prefers to rise early to get through his e-mail and other simple tasks before Twitter, Facebook and the rest of his socially networked Web really stir to life.

A friend of mine, meanwhile, says he puts his phone into airplane mode at social gatherings and dinners, temporarily suspending its ability to send and receive a signal.

A budding industry is geared toward helping people manage their attention and the various sites and services that hope to command it. But some of the makers of the biggest offenders of distracting technology are adding features that give users more control over their availability and accessibility to the rest of the world.

Apple plans to introduce a new feature called “Do Not Disturb” into an update of its next generation of mobile software, iOS. The feature will mute notifications and phone calls.

Susan Etlinger, a consultant at the Altimeter Group who advises companies on how best to use technology, said that phones and services that offered greater controls to manage interruptions could become an important selling point for buyers and tech users.

“It is becoming increasingly clear that attention is the new currency,” she said. “Consider social networks and the businesses we interact with every day. They are all competing for a sliver of our time and attention. So maintaining our attention becomes a competitive advantage.”

But even as she anticipates a rise in features and apps that help people manage their digital distractions, she also expects a flurry of new services and sites that will be clamoring for our attention.

“For every ‘Do Not Disturb’ feature, we’ll see alerts that intend to deliver information in real time,” she said. “If we’ve ‘liked’ a fast-food company on Facebook, our devices will alert us when we walk or drive by.”

But she offered a glimmer of hope. Even if our brains can’t adjust to the waves of information and services demanding our time, perhaps technology will someday emerge to do that for us.

“Eventually,” she said, “the context of the data and other factors — time, motion, expressed preferences, typical behaviors — will inform the applications I interact with so they adapt to my way of working and learning, rather than forcing me to adapt to them.”

On June 11, Apple showed its next operating system for iPhones and iPads. It offered maps and speech recognition, plus music and movies on iTunes, all tied via the Internet to Apple’s “cloud” of servers.

A week later, Microsoft, known better for software, demonstrated the Surface tablet, its answer to the iPad. The Surface interacts with both the Web and Microsoft’s cloud, called Windows Azure. And, last Wednesday, Google introduced its newest cloud-connected phone and tablet, as well as a media player called Nexus Q. The player works with the devices, the Internet and the Google cloud.

Remarkably fast, a multibillion-dollar industry is moving away from personal computers made mostly with Microsoft Windows software and Intel semiconductor chips. The combined revenue from these largely so-called Wintel desktops and laptops last year was about $70 billion at Dell and Hewlett-Packard. But these companies played virtually no part in the June shows from Apple, Microsoft and Google.

Asked what part it hoped to play in the cloud-dominated future, Dell declined to comment. An H.P. spokesman said in a statement that his company had computer servers and software in “eight of 10 of the world’s most trafficked sites, four out of five of the world’s largest search engines, the three most popular social media properties in the U.S.” He said nothing about PCs.

The tech future also poses challenges for Intel, which has been diversifying. Its chips are now in Apple computers and a host of other devices. Intel still has a significant place in the market, but often with lower-margin chips, and increased competition. Another chip company, Nvidia, got a shout from Google’s stage.

We are seeing a new business ecosystem with all sorts of mobile and cloud-connected devices. Each is a powerful computer, with connections to a nearly infinite amount of data storage and processing in the cloud.

“We’re entering this era where consumer electronics is the hardware, and the software and the cloud,” said Matt Hershenson, Google’s hardware director. His view increasingly holds for business computing, too.

Coincidentally, Friday was the fifth anniversary of the iPhone’s introduction. Next week, cloud-based software applications for the iPhone from outside developers will have their fourth anniversary. And, already, cloud devices that Google called experimental last year are now almost mainstream.

People now use their iPhones and tablets in their jobs. More than five million businesses write documents and swap spreadsheets in Google’s cloud-based applications. Microsoft, with arguably the most at risk in this transition, has 273 business and finance applications for sale in its cloud store, Azure Marketplace.

In the new ecosystem, many rules are still being worked out. Amazon, with its Kindle tablet and a successful online computing cloud and software store, may yet be a significant player. So may Barnes & Noble, which has a decent tablet and apps in the Nook reader but lacks a big cloud data center.

A few things are already clear. Power now centers on controlling millions of computers tied together in the cloud, with a complementary marketplace where people can find, sell and manage applications. Few physical stores sell software anymore, but sales channels still matter. Even the iPhone did not really take off until it had apps, sold through Apple’s store.

Those apps were written mostly by outside software developers. Developers have been important to the industry for decades. If you keep thousands of them happy with decent software-making tools and a big potential audience, as Microsoft learned, they will build products that make you essential. When the PC came along, these were games like Flight Simulator and productivity software like Lotus; now we have Angry Birds and modifications of Google Apps.

In the Wintel world, new versions of Microsoft Windows came out every few years, with major software projects tied to desktops and laptops. By contrast, in less than five years Apple has announced six versions of its mobile operating system. Google’s operating system for cloud-connected laptops, called Chrome, is updated every six weeks. The June meetings were intended to get developers working on consumer products that would be out by Christmas.

“Urgency has a whole new meaning now; you can’t slip,” said Andy Peterson, a senior software engineer at L4 Mobile, which makes mobile applications for companies like Sony and MTV. He was one of 5,500 developers at Google’s I/O conference last week. “I started at the company last September,” he said, “and I’m on my fourth application.”

Still, he says, the pace and the ability to get a creation into so many hands is exciting.

Dell and H.P. might not be joyful, but should they be glum? With so many devices, the consistent experience may be guided by centrally managed cloud software, but hardware is where the experience lives. That is why Steve Jobs was so long adamant that Apple control both hardware and software, and why even now Apple is picky about which independently produced apps are allowed in its store.

Microsoft apparently showed off the Surface without much notice to longtime hardware partners but could now bring them in to build it. Google’s strongest outside relationship with a hardware maker seems to be with Samsung. Google’s new tablet was made by Asustek of Taiwan.

Google says it is open to working with the incumbents — but these companies have to completely reimagine themselves, centering on using their esoteric knowledge of how business uses technology, rather than how to make a cheaper PC.

“What H.P. and Dell can do is understand the needs of the enterprise,” said Sundar Pichai, senior vice president for Chrome at Google. “They can say, ‘Here is our tablet, we have phones, here is how it will work across your company.’ We don’t have a sales force that can do that.”

That may mean giving up on the consumer market, more or less. But it beats being a relic of the old world.

Both countries have debt and deficit levels that are no worse, and in some cases better, than those of Britain, Japan and the United States. But because they cannot devalue their currencies and must instead impose growth-sapping economic measures to regain competitiveness, their bonds have traded as if their economies are near insolvent. Meanwhile, the securities of debt-racked Britain, for example, are snapped up with abandon.

It is a paradox that lies at the heart of the European debt crisis. On Friday at its most recent summit meeting, Brussels took a halting first step to addressing this issue on a permanent basis. Euro zone leaders proposed that Europe’s current and future rescue facilities might buy Italian and Spanish bonds as long as these countries fulfilled Germany’s austerity demands and met debt and deficit targets. The market, expecting more waffling, jumped and the yields on 10-year Spanish and Italian bonds dropped sharply as investors celebrated the prospect that Europe might become a buyer of last resort of its beaten-down bonds.

Still, Friday’s euphoria notwithstanding, economists and market participants remain doubtful that the bond market fears can be permanently assuaged until the European Central Bank intervenes with the force and conviction shown by its peers in the United States and Britain.

Paul De Grauwe, a Belgian economist at the London School of Economics, says he believes that the latest step will not be enough. Mr. De Grauwe has written extensively on how the cycle of fear and panic in the bond markets is pushing countries that may not need a bailout to ask for one.

The euro zone’s temporary bailout fund, the European Financial Stability Facility, which has only 248 billion euros at its disposal and must first raise the money on the bond market, does not have the firepower to convince skittish investors that Europe is serious, he said. Italy and Spain alone have a total of nearly 2.5 trillion euros in sovereign bonds outstanding.

Mr. De Grauwe proposes instead, that the European Central Bank announce that it will be an aggressive buyer of Spanish or Italian bonds until the spread — or the difference between the yields on these bonds and benchmark German bonds — reaches a certain level, say 300 basis points, compared with the recent level of 500 basis points and above.

“You would then have a floor on bond prices and it would be attractive for investors to buy Spanish bonds again,” said Mr. De Grauwe.

His most recent paper claims that the Spanish and Italian bond rout has been driven more by the psychology of fear than hard and true economic numbers.

“The E.F.S.F. does not have the credibility given its resources,” Mr. De Grauwe said. “What you need are the unlimited resources of a central bank.”

Such a forceful approach has been resisted by Germany, the bank’s largest shareholder, on the basis that countries would not proceed with necessary reforms. It is also true that the E.C.B. has intervened in the markets before and is said to own close to 150 billion euros of weak euro zone country bonds.

The buying has had little effect, though, because the numbers have been relatively small and because the operations have been done mostly in secret, largely mitigating their effect.

If the bank were to set an open target, in the same vein that Switzerland’s central bank did last year when it shocked markets by declaring that it would limit the increase of the Swiss franc by intervening at a certain level, then perhaps bond investors would take heed.

Instead, after the Greek debt restructuring and the Spanish bank bailout, foreign investors have been sellers of Spanish and Italian bonds, fearing that as the yields increase to near 7 percent and above, so does the risk that these countries will run out of money — even though the raw numbers would argue the opposite.

Italy, for example, had a primary surplus in 2011 of 1.1 percent of gross domestic product, meaning its budget is more than balanced if one takes away interest payments. And Spain’s debt last year was 68 percent of its G.D.P. — lower than Germany’s and France’s. Still, problems are severe in both countries: a banking collapse that required a 100 billion euro bailout in Spain and chronic stagnation and higher debt in Italy.

Nevertheless, as Mr. De Grauwe would have it, Spain and perhaps even Italy could be forced into a bailout at some point because investors are fixated on the notion that, because they are in the euro zone, they will not have time and flexibility to make the necessary changes.

Christopher Marks, the global head of debt capital markets at BNP Paribas, argues that this insolvency fear is being fanned by a new breed of short-term investors who have entered the market in the last year or two and have become the dominant voice, arguing loudly that Spain and Italy are destined to fail — and making investment bets to that effect by either selling short the bonds or buying credit-default swaps.

The result is heightened volatility, lack of liquidity and everclimbing yields — the bond market equivalent of fear — as longer-term core investors like pension funds, sovereign wealth funds and insurance companies have stopped buying these securities.

“The traditional buyers of these bonds will return — but only when there is a decrease in volatility and the yield,” said Mr. Marks.

As to whether this latest promise by Europe to use the E.F.S.F. and its successor entity to intervene will make a long-term difference, Mr. Marks remains cautious.

As always, details on how Europe would intervene in the bond markets were scant, outside of a statement in which Brussels said it would “do what is necessary to ensure financial stability in the euro area,” by deploying the bailout vehicles. And that there would need to be a memorandum of understanding between the country in question and Europe regarding conditions to be met.

In another concession to private sector creditors, Brussels said that loans made to Spain via the European Stability Mechanism, the successor bailout vehicle to the E.F.S.F., would not be considered senior to the claims of bond investors — thus easing fears of a debt restructuring and making Spanish bonds more attractive.

Mr. Marks considers the summit meeting agreement “a short-term palliative.” He says he believes that the bailout funds’ ability to intervene with maximum effect will be tested sooner rather than later.

Which gets to Mr. De Grauwe’s point: until the E.C.B. can convince investors that it is truly backing the bonds of these countries — and that it can shock and awe, beyond just offering cheap, long-term loans — investors will keep calling Europe’s bluff.

“It’s like a general saying that he will win a war by minimizing shooting,” Mr. De Grauwe said. “It just doesn’t work.”

But questions quickly arose about how far they still had to go, leaving unresolved the most fundamental problems of the euro zone, its structural imbalances and lack of a lender of last resort. While Chancellor Angela Merkel of Germany ceded some ground by agreeing to direct refinancing of banks, she did not yield on the issue of sharing debt burdens, which is highly unpopular with German voters but is seen by many economists as a necessary step in saving the currency.

“In a nutshell, we think that the Europeans have cracked open more doors than we thought, but they still have a lot on their plate,” said Gilles Moëc, an economist at Deutsche Bank in London. “The discussion on fiscal integration and debt mutualization has not started in earnest.”

At the latest all-night meeting since the beginning of the long euro crisis, the leaders made a breakthrough toward more central control over their banking system, a crucial aspect to the stability of the common currency. They also moved swiftly to grant their bailout funds more flexibility to come to the rescue of Spain and potentially Italy, the fourth- and third-largest economies in the euro zone, respectively, because they are too big to fail.

But the meeting also signaled an important shift in the foundation of the euro zone, with France, under the new Socialist president, François Hollande, breaking from the familiar lock step with Germany. Working more in partnership with Prime Minister Mario Monti of Italy than with Ms. Merkel, Mr. Hollande helped to isolate Germany and broker the deal for Italy and Spain, which breaks a previous German taboo on direct recapitalization of ailing banks, and makes a beginning, however small, toward pooling liabilities.

Financial markets rallied Friday, suggesting that the measures had exceeded admittedly low expectations. The president of the European Central Bank, Mario Draghi, who has not shied from criticizing political inaction, called himself “quite pleased with the outcome.” He added, “It showed the long-term commitment to the euro by all member states of the euro area.”

In return for allowing the direct recapitalization of banks by the bailout funds, Germany won agreement on a single banking supervisory agency, with the European Central Bank playing a major role, a shift bringing it closer to the powers of the United States Federal Reserve.

Agreement on the bank authority was “the major breakthrough” of the night and a crucial step in breaking “the vicious circle between banks and sovereigns,” said the European Council president, Herman Van Rompuy. While the long euro crisis has been centered on excessive government debt, European banks have been weakened by their portfolios of government bonds, made worse in Spain and Ireland by a property bubble that burst.

Spain has asked for a bailout of up to $125 billion for its banks, but objected to that new debt being added to its national debt, rather than directed to the banks themselves. Investors pushed Spanish and, in a ripple effect, Italian debt toward unsustainable levels. Italy’s total debt is about 120 percent of gross domestic product, second only to Greece in the euro zone.

The new deal will let the bailout funds lend directly to Spanish banks — although not until the new central bank supervisor is established — probably by the end of the year. Spain also would not get a lot of onerous new conditions because it, like Italy, is making serious strides to streamline its government and economy and cut its deficit. Also important to investors, in the case of Spain, the bailout fund will not be the first in line for repayment, in the event of default.

“We have taken decisions unthinkable just some months ago,” said José Manuel Barroso, the European Commission president.

Mr. Monti, who emerged a winner from the summit meeting, said that Italy had no immediate plans to seek help from the bailout funds, but might in the future. He and the Spanish prime minister, Mariano Rajoy, held up agreement at the meeting until the early hours of Friday, when they got a deal on the use of the bailout funds. Some of the leaders resented what they felt was blackmail, but others saw it as a hard-nosed negotiating tactic by Mr. Monti.

Prime Minister Enda Kenny of Ireland described the agreement as “a seismic shift in European policy,” after having won a promise that Ireland’s bailout for its collapsed banking sector could be adjusted as well.

In a research note, the international bank BNP Paribas wrote that while the agreement on using bailout funds to purchase debt was a positive development, it also noted that “the details are rather lacking” and warned that this fact “could temper the initial market enthusiasm.” The uncertainty was underscored on Friday when Mr. Hollande said that future bank bailouts could be authorized without the unanimous consent of the euro zone members, making such rescues far easier. But that interpretation was immediately disputed by European Union officials, who could find no such stipulation in the fine print.

Mr. Hollande, while speaking Friday of “no winners and no losers,” clearly supported Italy and Spain, no doubt concerned that France, with its total debt now approaching 90 percent of gross domestic product, might be next in line if the markets tired of speculating on Spain and Italy.

James Kanter contributed reporting from Brussels, and Melissa Eddy from Berlin.

Stocks and the euro opened strongly higher in Europe and were still rising through mid-afternoon — a clear suggestion that the summit, by breaking new ground, had exceeded expectations. Analysts cautioned that earlier summit agreements had prompted market rallies that proved short-lived.

The decision, by leaders of the 17-nation euro zone, would allow help to banks without adding directly to the sovereign debt of countries, which has been a problem for Spain and potentially for Italy. Both countries have seen the interest rates on their debt rise to levels that would be unsustainable in the long term, and the Italian and Spanish prime ministers, Mario Monti and Mariano Rajoy, came here to push their colleagues to help.

Though the German chancellor, Angela Merkel, made concessions, they came with conditions, and some of the detail remained unclear Friday, prompting calls for more clarity to be provided quickly.

The deal was struck after the Italian and Spanish leaders said they would block all other agreements — on a 130 billion euro or $163 billlion growth pact, for example — until their colleagues did something to help take the pressure off the third- and fourth-largest economies in the euro zone.

If their countries could not go to the markets to roll over their debt, Mr. Monti and Mr. Rajoy argued, there would be an existential threat to the euro in the short to medium term.

Spain is seeking 100 billion euros to recapitalize its banks, damaged by a property bubble.

Mr. Van Rompuy called the agreement a “breakthrough that banks can be recapitalized directly,” which represents a concession by northern European countries, including Germany.

As a condition, though, the leaders agreed that the euro zone’s permanent bailout fund, the 500 billion euro European Stability Mechanism, due to come into being next month, could act only after a banking supervisory body overseen by the European Central Bank had been set up. That should happen by the end of the year, Mr. Van Rompuy said.

François Hollande, the French president, said Friday that the agreement offered a number ways to give troubled economies the rapid assistance that they had been seeking.

“It’s very important that we put into motion procedures for immediate action — that was something much hoped for,” he said. “Bank supervision for a recapitalization of the banks will take a bit more time, but this is a move in the right direction.”

“To have defined a vision for the economic and monetary union” was a fundamental step toward answering the question “what we do we want to do together,” Mr. Hollande said.

Graham Neilson, chief investment strategist at Cairn Capital, an asset management and investment company in London, noted that while the agreement represented progress, some fundamental issues were not addressed.

“The burden of future risk is being shared more widely, meaning the chances of a euro zone breakup have been lowered for the short term,” he said. “But at the same time, the longer-term ante is higher for all involved and the root causes of the structural imbalances remain.”

Ms. Merkel has argued that risks could only be pooled among euro nations if decision-making on key issues were also shared. She insisted that the decisions in Brussels were based on Germany’s basic philosophy of how to solve the crisis, through a series of checks and balances, with rewards for meeting conditions that are governed by a strict set of controls.

Unease emerged in Berlin, however, over the extent to which the principles of the euro zone bailout fund, the E.S.M., had been altered from the original agreement that is to be put to vote in Parliament later Friday.

The breakthrough came at a period of uncertainty in financial markets tied to the debt crisis in euro zone countries and concerns about global economic growth. Analysts said that after multiple previous summits by euro zone leaders to address the problems, market expectations were low for an aggressive outcome.

A broad European rally with gains of more than 4 percent set off reverberations in the United States markets. In morning trading on Wall Street, the Dow Jones industrial average leapt 1.7 percent, while the Standard & Poor’s 500-stock index pushed 1.9 percent higher, and the Nasdaq composite index jumped 2.2 percent.

Analysts noted that the numerous summits held to address the problems have set off rallies that proved short-lived. Rick Bensignor, the chief market strategist for Merlin Securities, said in a commentary that the “large surge this morning has potential significant short-term bullish implications.” 

“Clearly, the market is taking this as the most significant of potential outcomes that we have seen for meetings like this, and it may have more significance than just short-term implications,” said Mr. Bensignor in an interview.

He said that after about 19 meetings to address the euro zone problems in recent months, only time would tell whether the impact in the markets would be knee-jerk or have lasting effects.

Markets in euro zone countries were sharply higher in afternoon trading, most more than 4 percent. The Euro Stoxx 50 index, which covers an array of blue-chip companies in the euro zone, was up 4.4 percent.

“Given the low expectations for the E.U. summit, overnight trading was positively surprised” by the results of the European Union meeting, according to a research note from Janney Montgomery Scott.

Spanish and Italian bond yields have been dizzyingly high, reflecting the low confidence of investors in the recent period, but they slid on Friday to 5.8 percent for the Italian 10-year and 6.4 percent for the Spanish 10-year.

The yield on the benchmark 10-year Treasury yield was up to 1.65 percent in early trading, while the German 10-year was at 1.6 percent.

The dollar was lower, reflecting a weakness across a range of currencies. The euro rose sharply by about 2 percent to $1.2678.

While details still needed to be worked out, the euro zone leaders said that the use of their bailout funds to recapitalize Spain’s struggling banks directly would take place once they have created a structure for joint bank supervision under the European Central Bank.

They agreed to ease the conditions under which the bailout funds could buy government bonds, a move that could be of benefit to Italy if its government financing costs remain under pressure.

The rally came at the end of trading for the second quarter of 2012, which all of the major global stock indexes will close out broadly lower.

Investors have in recent months heavily sold the euro and moved out of European stocks. Some of those who had ”shorted” those assets, that is, to have sold them on the expectation of being able to buy them back later at a profit, on Friday were buying buy back quickly to avoid losses.

Charles Diebel, head of market strategy at Lloyds Banking in London, attributed much of the action Friday to a “short-covering” rally.

“Given how low expectations were, it’s no surprise” that the markets are up, he said. “But it’s too early to say Europe’s saved.”

Investors are now looking for signs that the European Central Bank’s governing council, which has been reticent to act in the absence of movement on the political front, may now be ready to further support ailing euro zone governments.

Mr. Diebel said the E.C.B. could move as early as its next meeting, on Thursday, to cut its main interest rate target and possibly provide further liquidity to the financial markets, as it has done twice since late last year in its longer-term refinancing operations.

Asian markets were also higher. The Hang Seng closed up just over 2 percent and the Nikkei rose 1.5 percent.

David Jolly reported from Paris.

That, at least, was the immediate view of the impact of the Supreme Court’s ruling Thursday that upheld the nation’s health care overhaul.

It was also a view shared by stock market investors. Hospital stocks rose, with HCA gaining about 11 percent and Tenet Healthcare rising 5 percent. Stocks of insurers like WellPoint, however, lost as much as 5 percent. Some medical device and pharmaceutical stocks had slight declines.

For hospitals, the good news is that the law, which is aimed at extending insurance coverage to more than 30 million people, was upheld.

That will mean fewer uninsured people streaming into their emergency rooms receiving treatment for which they cannot pay.

But executives and analysts say that the Supreme Court decision, and the law itself, are not unalloyed benefits for hospitals. “It’s a huge exaggeration to say just because of today’s action that everything is going to be nice and rosy going forward,” said Michael Dowling, the chief executive of the nonprofit North Shore-Long Island Jewish Health System.

Executives and analysts say that the law will reduce Medicare payments for hospital services. For some hospitals, like MemorialCare Health System, a six-hospital chain in Southern California, those cuts more than offset any potential gains from newly insured patients, said Barry Arbuckle, its chief executive.

Moreover, the Supreme Court ruled Thursday that the federal government could not withhold certain payments from states that refuse to participate in an expansion of Medicaid. The Medicaid expansion, which was expected to account for at least half of the newly covered people, now will be a choice for states rather than a requirement.

The government “has lost its stick,” said Sheryl Skolnick, an analyst at CRT Capital. “There is a risk here that the Medicaid expansion may not happen as hoped for by the hospital industry.”

Still, some executives said that there were carrots that could induce the states to go along, mainly the fact that the federal government would shoulder a majority of the cost of the expansion.

“The people who need this coverage aren’t going away,” said James G. Carlson, chief executive of Amerigroup, an insurance company that works mainly with Medicaid patients. He said that despite expected comments from some state officials opposing the Medicaid expansion, “We think most of them will come around to the idea that it probably makes pretty good sense.”

Investors seemed to agree. Amerigroup’s shares rose about 5 percent. A competitor, Molina Healthcare, rose about 9 percent.

Shares of commercial insurers like WellPoint and Aetna largely fell. Those insurance companies avoided what had been considered a bad outcome: a decision that threw out the individual mandate to buy health insurance but kept intact the requirements that insurers cover patients with pre-existing conditions and charge sick patients the same as healthy ones. That, they said, would have forced them to pay for the law’s expensive elements without the influx of healthy customers the mandate was designed to bring in.

Still, some investors had apparently been hoping that the law would be tossed out in its entirety, relieving insurers of restrictions like a requirement to spend a certain percentage of the premiums they collect on medical treatments.

“This was a bill that passed with an onerous set of restrictions on how the industry could operate, and the Supreme Court confirmed that this is going to be the lay of the land,” Joshua Raskin, an insurance industry analyst at Barclays, said in an interview.

The stock decline surprised Robert Laszewski, a health industry consultant, who said the law was a known quantity and the result of bargaining between industry executives, including those in the insurance industry, and politicians.

The decision does allow insurers to seek new customers. Cigna, for example, has recently begun a push into providing coverage for individuals. “We see it as an attractive growth market,” David Cordani, Cigna’s chief executive, said Thursday.

Indeed, as the day wore on, some of the stocks of health insurers began to recover, with UnitedHealth Group and Humana actually finishing the day slightly higher.

Under the law, pharmaceutical companies are paying new taxes, additional Medicaid rebates and subsidies to close the Medicare drug coverage “doughnut hole.” But investors and companies had already factored in these costs, so the upholding of the law preserved the status quo.

“Much ado about nothing,” Matthew Roden, biotechnology analyst at UBS, said in a note Thursday.

Had the law been struck down, however, analysts had expected that drug company earnings would have risen in the short term.

Medical device companies will have to pay a new 2.3 percent tax on sales starting in January to help pay for the new law. The House of Representatives recently voted to repeal the tax, but the prospect of such legislation passing the Senate is uncertain.

Device companies and their representatives say the tax will impede innovation and cost jobs. But the new health care law will not bring device companies many new customers because many of the newly covered individuals will be young.

“Most of them are not getting knee replacements and hip replacements and a lot of things you see in the device world,” said Mary Grealy, president of the Healthcare Leadership Council, a trade association representing chief executives of various sectors in the health care industry.

Reed Abelson contributed reporting.