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Balm For The Markets


During his years in academia, Fed Chairman Ben Bernanke was a fervent believer that during market panics, the central bank's role was to dump as much liquidity as needed to stabilize the system—even though critics howled that such moves only enabled more risk-taking. Well, he hasn't opened the floodgates yet, but on Aug. 17 he cut the rate at which the Fed lends directly to banks, from 6.25% to 5.75%. (On Aug. 22 four large banks, including Citigroup (C) and JPMorgan Chase (JPM), tapped the Fed's lending window for $500 million each on behalf of clients.)

While Bernanke's move helped stabilize the markets—the S&P 500 rose 3% in the four trading sessions after the Fed action—many pros doubt it'll be enough. With mortgage lenders continuing to fail in droves, and demand in some credit markets still dried up, many economists figure Bernanke will slash the federal funds rate—the benchmark by which many variable-rate loans are set—by its next scheduled meeting in September.

As the markets rocked and rolled, mortgage companies took various actions to stay afloat. On Aug. 20 jumbo mortgage specialist Thornburg (TMA) sold off more than $20 billion in bonds at a discount to raise cash. Countrywide (CFC) accepted a $2 billion investment from Bank of America. Capital One (COF) on Aug. 20 said it'll close its Greenpoint mortgage unit, and Lehman Brothers (LEH) on Aug. 22 shuttered BNC Mortgage, laying off 1,200. And Accredited Home Lenders (LEND) on Aug. 22 became the latest to stop taking loan applications and will jettison half its staff.

See "Mortgages: Smaller Banks Smell Blood"

What, them worry? Despite market turmoil in the rest of the world, on Aug. 22 Chinese stock hounds sent the CSI 300 index blasting through the all-important 5000 level, shrugging off a 0.18-percentage-point rate hike by the People's Bank the previous day. The index is up 147% this year. The rate move came after another bid to deflate the stock bubble: On Aug. 20, Beijing unveiled a landmark decision to allow Chinese citizens to invest in Hong Kong stocks. That's seen as an attempt to siphon off some liquidity.

See "No Stopping Chinese Stocks"

Throwing in the towel after his 17-month fight to buy the London Stock Exchange, NASDAQ (NDAQ) CEO Robert Greifeld announced plans to dump his 31% stake. Greifeld on Aug. 21 said he'd like to pay down NASDAQ's $1 billion debt and focus on plans to buy OMX, the Swedish exchange operator that is also being pursued by Borse Dubai. NASDAQ could log a gain of about 15% on its LSE shares, now worth nearly $1.6 billion. Meanwhile, The Wall Street Journal reported on Aug. 22 that online brokers TD Ameritrade (AMTD) and E*Trade (ETFC) are talking merger.

Delta Air Lines (DAL) new CEO has finally boarded. On Aug. 21, four months after the Atlanta carrier flew out of bankruptcy, it picked ex-Northwest Airlines (NWA) CEO Richard Anderson, 52, to succeed the retiring Gerald Grinstein. Anderson's ties to Northwest fueled merger talk, but he told BusinessWeek: "Delta has a strong position in the industry and will remain in control of its own destiny."

The high-def wars rage on. Paramount (VIA) and DreamWorks Pictures on Aug. 20 added a surprise plot twist to HD-DVD's battle with Blu-ray for domination. The two studios, which had been releasing on both formats, now will sell only HD-DVDs. The news is a blow to Sony (SNE)-backed Blu-ray and could further sap consumer interest in both, since buyers will get only half of Hollywood's blockbusters in choosing one format.

See "DVD Wars: Not Over Yet"

Could HSBC (HBC) finally grab a South Korean bank? After being outbid twice, the London giant said on Aug. 20 it was in talks to buy a 51% stake in Korea Exchange Bank, Korea's sixth-largest lender, from buyout firm Lone Star. HSBC faces hurdles this time as well. Lone Star has run into problems cashing out because Korean prosecutors accuse it of colluding with bureaucrats to buy the bank on the cheap in 2003. Lone Star denies any wrongdoing.

August hasn't been much fun in Toyland. After two Mattel (MAT) recalls earlier in the month, Toys R' Us and sister company Babies R' Us announced on Aug. 17 that they were yanking yet another lead-tainted product: vinyl baby bibs. The bibs were made in China for Hamco, a subsidiary of Louisiana-based Crown Crafts (CRWS). A spokeswoman says Toys R' Us has beefed up its own testing and "will hold Hamco accountable."

The stainless steel DeLorean sports car traveled through time in the Back to the Future movies. Now the DeLorean will be reborn 25 years after its death. In late 2008, Stephen Wynne, an entrepreneur in Humble, Tex., who has been restoring DeLoreans for years, will start selling new ones hand-built using a combination of leftover original parts and new ones. Starting price: $57,500. Time machine not included.

The YouTube multiplex has a new feature: ads. On Aug. 21, Google (GOOG) announced plans to insert sponsored messages into thousands of YouTube videos provided by its content partners. Previously the site had served ads only in fixed spots on its Web pages and in special brand-sponsored channels.

See "Now Playing on YouTube: Ads"

She may have been the perfect icon of the Me Decade, outshining other sterling candidates such as Michael Milken, Ivan Boesky, or even the fictional Gordon Gekko of "Greed is good" fame. Hotel and real estate magnate Leona Helmsley died on Aug. 20 at 87, unleashing a torrent of headlines featuring the phrase "Queen of Mean," referring to her treatment of employees. Helmsley began her climb to superriches and notoriety as a New York apartment broker. She married real estate mogul Harry Helmsley in 1972 after he divorced his wife of 33 years. In 1980 he named her head of the Helmsley hotel operations, and she began to appear in a highly successful series of ads for the hotels that proclaimed "the queen's" high standards. The ads made her famous, but in 1989 she was convicted of evading federal income taxes for fraudulently listing luxury items as business expenses. During the trial, a former maid quoted her as saying: "Only the little people pay taxes." After 18 months in jail, she remained as irascible as ever and was often tangled in lawsuits. Her holdings are worth an estimated $2.5 billion.


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