Another Week, Another Financial Drama

As bankruptcies, scandals, and layoffs mounted, the shell-shocked markets tried to look ahead to brighter times next year

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What a week: Detroit flirted with the precipice, the feds fingered a lion of Wall Street in a $50 billion Ponzi scheme, news giant Tribune slouched into bankruptcy, investors loaned Uncle Sam $30 billion—interest free. And then there was Illinois Governor Rod Blagojevich, arrested on charges of trying to shake down Sam Zell and auction off President-elect Barack Obama's Senate seat.

The stock market? It yawned, roughly breaking even amid the automaker cliff-hanger after spending most of the week solidly up. Compare that with September, October, and much of November, when bad news flowed to a staccato beat and the markets jigged accordingly. "There's nothing much that'll really surprise you any more," Rich Repetto, a financial-stock analyst for Sandler O'Neill, said Friday. Investors have "seen everything and are sort of shell-shocked."

And yet, the Blagojevich imbroglio suggests there may be life in the patient still: Blasé as the world seemed about the dire economic and financial news, the Illinois governor's alleged expletive-laced efforts to cash in on Obama's vacant Senate seat seemed to draw genuine astonishment, even in corruption-scarred Chicago.

Close to the Vest

Of course, the market's calm in the face of this week's storms may well have a more jaded undertone. Repetto, for one, sees a little end-of-year caution at work among big institutional investors—many of whom have to report their holdings to suspicious investors annually. Much better to be seen holding something safe—like Treasuries, whose yields have been driven down toward zero by voracious demand. Plus, fund managers with profits (or even just small losses) have little appetite for big risks just before their scorecard is tallied on Dec. 31. Repetto says he knows three big hedge-fund managers heading off to Florida, the Bahamas, and elsewhere. "People hang up their cleats for the year," he says.

Certainly, as the week began, there was plenty of gloom around, even if you weren't looking particularly hard. On Dec. 5, word came that the U.S. shed more than half a million jobs in November, the worst showing since 1974 and enough to bring the year's job losses so far to 1.9 million. Yet, in a sign of the mysteries to come, the Dow closed up 259 points, and word filtered out that congressional leaders were near a deal to shore up the faltering automakers.

Monday, Dec. 8, began with a little light relief from —The Wall Street Journal reported that he asked Bank of America (BAC) for a $5 million to $10 million bonus for having delivered it a solvent Merrill Lynch (MER). Thain ultimately accepted zero. Yet storm clouds lingered: Predictions for 2009 ad spending tumbled, Extended Stay Hotels was in talks with creditors, and 3M (MMM) said it would cut 1,800 jobs.