Of TARP and Jobs
"There has rarely been a less loved or more necessary emergency program than TARP," said President Barack Obama to an invitation-only Brookings Institution audience on Dec. 8. The Treasury Dept.'s $700 million bailout program continues to bedevil politicians' approval ratings, though an often critical watchdog, the Congressional Oversight Panel, confirmed it has proved effective. Bank of America's (BAC) Dec. 2 announcement that it plans to return $45 billion in TARP cash left Citigroup (C) and Wells Fargo (WFC) as the only two giants that haven't repaid, and the two banks are clamoring for terms under which they, too, can make good—and thus escape federal executive-pay strictures. In a Dec. 9 letter to Congress, Treasury Secretary Timothy Geithner extended TARP through next October but said he expected bank repayments to reach $116 billion "soon" and total $175 billion by the end of 2010. He added that the bailout would ultimately cost taxpayers at least $200 billion less than projected as recently as August.
Geithner pledged that going forward, the program would focus on slowing foreclosures, sparking more community-bank lending to small business, and supporting consumer credit. Meanwhile, the White House wants to use the budgetary savings to bolster the President's Dec. 8 demand for new job efforts to beef up this year's $787 billion stimulus program. At Brookings, Obama proposed another extension of unemployment benefits, more public-works spending, and additional aid to state and local governments. One high-profile element, dubbed "cash for caulkers," would award tax rebates for improving home energy efficiency, potentially up to $12,000 per homeowner. Deficit-conscious Republicans slammed the proposals, with Arizona Senator John McCain arguing that the use of bailout savings for jobs is akin to a "slush fund." Other GOP leaders demanded a TARP shutdown by Dec. 31.
A Health-Care Deal
Senate Majority Leader Harry Reid (D-Nev.) may at last have a health-reform bill that 58 Democrats and two independents can bring themselves to vote for. A delicate compromise, announced on Dec. 8, aims to give all sides a slice of what they want. The public option—the government-financed health insurer that Obama had pushed—is gone. Instead, the federal Office of Personnel Management would be authorized to negotiate with private insurers to offer national health plans, instead of the state-by-state plans primarily available now. Americans aged 55 to 64 would be allowed to buy into Medicare, which would help the estimated 2 million to 3 million people in that group who are out of work and unable to afford private insurance. Now, Reid is banking on a favorable cost estimate from the Congressional Budget Office, which would enable him to move the bill to the floor for debate during the week of Dec. 14.
See "Democrats Said to Agree to Drop Public Option"
Japan Backs Off
In a step back for free-market reform in Japan, the Democratic Party, elected in August, won parliamentary approval on Dec. 4 to scrap a plan to privatize Japan Post, the vast, stodgy postal-services agency where many citizens stash their money. The move infuriated allies of former Prime Minister Junichiro Koizumi, who won a second term backing postal reform in 2005. With assets of $3.4 trillion and a reputation for inefficiency, Japan Post stifles competition in financial services and hobbles the economy, say the critics. Meanwhile, on Dec. 8, Prime Minister Yukio Hatoyama's government passed a new, $81 billion stimulus package. There's little doubt of its necessity: On Dec. 9 the Cabinet Office revised its July-September GDP growth figure to an annualized 0.3% from an earlier estimate of 1.2%, citing skimpy corporate spending.
See "Japan Unveils Another Stimulus"
The first opinion penned by Supreme Court Justice Sonia Sotomayor won't please Corporate America: In Mohawk Industries (MHK) v. Carpenter, she ruled that instead of holding back sensitive internal documents while appealing court rulings to disclose them, companies must respect orders from the bench immediately and file any complaints after the litigation is finished. That broke no new legal ground, but the 9-0 ruling—traditionally, a new Justice's first opinion is rendered on a unanimous decision—may signal future fireworks between Sotomayor and conservative Justice Clarence Thomas. He signed part of the opinion but bristled at what he sensed was a value judgment, rather than a legal interpretation, in a section of the ruling in which she explained out how she came to her conclusion.
Could Greece become the first euro zone country to slide into default? Fitch Ratings cut the country's sovereign rating on Dec. 8 to BBB+, the third-lowest investment grade. A day earlier, Standard &Poor's (MHP) put Greece on its watch list for possible downgrades. With the government budget deficit likely to top 13% of GDP this year, it's no wonder investors are fretting. European Union officials say they will step in if Greece can't put its house in order.
Obama's Green Gambit
When it comes to global warming, who needs Congress? As the 192-nation Copenhagen climate summit convened on Dec. 7, President Obama strengthened the U.S. hand when his Environmental Protection Agency said it would clamp down on greenhouse gases under the Clean Air Act. Washington's new commitment boosts chances that nations will agree to specific emissions targets in Copenhagen—though a legally binding accord will be left for later—and that wealthier countries will agree to hand billions of dollars to poorer ones to help them get greener. The EPA's action also puts more pressure on Congress to act, since just about everyone in the U.S., from business groups to environmentalists, prefers climate legislation to regulatory action.
Prospects for the wildly popular Zhu Zhu Pets, which resemble real hamsters sans smell and bother, took a dive when consumer group GoodGuide announced on Dec. 5 that one toy it tested contained illegal levels of antimony, a toxic metal. False alarm, said the Consumer Products Safety Commission two days later: The critters meet all federal standards. GoodGuide quickly backtracked and apologized, explaining that it used a testing method different from—and not comparable to—the feds' approach.
Go-go mortgage lender New Century Financial went bankrupt in April 2007—an early indicator of the coming catastrophe in the subprime sector. Nearly three years later, the legal ramifications continue to unfold: On Dec. 7 the SEC filed civil suits against three former executives, alleging securities fraud. The agency says New Century co-founder and CEO Brad Morrice, CFO Patti Dodge, and Controller David Kenneally failed to disclose key information, including dramatic increases in loan defaults and repurchase requests from mortgage investors. Morrice collected the negative news in internal reports he titled "Storm Watch," says the complaint. It adds that in 2006, Dodge and Kenneally altered New Century's accounting for loan repurchases in violation of generally accepted accounting principles. A lawyer for Morrice stated the charges are "flatly false," while attorneys for Kenneally and Dodge said they had done nothing wrong and would defend themselves against the allegations.
The BusinessWeek/YouGov Optimism Meter: Less Gloom Out There
The Optimism Meter, a proprietary measure of sentiment and expectations, economic statistics, and market forecasts, gained 2 points in the week ended Dec. 8, to 44, as 15% more people said they believe the economy is improving and the share who think things are getting worse dropped to a two-month low. Developed to track shifts in outlook among individuals, professional investors, and economists, the meter gauges optimism about jobs, markets, and growth.
* Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest
Data: YouGov, Bloomberg BusinessWeek
Google finds itself in an unfamiliar position: playing catch-up in the realm it dominates. On Dec. 7, Google (GOOG) launched a feature that merges the frequent updates made by users of social sites Facebook, MySpace (NWS), and Twitter with its general Web search results. Now, users looking for info on fast-unfolding events, such as the Iranian election protests, can scan through messages posted in the past few seconds rather than rely on indexed articles or sites that may already be outdated. In October, Microsoft (MSFT) connected its Bing search engine to Twitter in a similar fashion, but Google's deal with News Corp.'s (NWS) MySpace is a first. Google also said on Dec. 4 that regular search results will be custom-tailored based on each user's surfing history.
See "Google Gets Real-Time, Personalized Search"
Are Independent Researchers an Endangered Species?
Way back in 2002, the SEC and then-New York Attorney General Eliot Spitzer grew alarmed about conflicts of interest on Wall Street. A series of scandals convinced them that the supposed Chinese wall between research analysts and other staff at investment banks was all too porous: Researchers tended to sing the praises of companies that gave the banks plenty of other business, or make buy/sell calls that would help traders sell stocks .
The result: A $1.4 billion settlement. As part of the deal, 10 big Wall Street firms spent $430 million over five years on research from independent firms. That accord expired in July, as a Dec. 6 article in the Financial Times points out—pulling the rug out from under the independents, whose revenues have been tumbling much faster than the rest of Wall Street's. Sanford Bragg, head of Integrity Research Associates, which tracks the industry, estimates that in 2009, asset managers will spend $1.67 billion on research from independents, down 18% from the previous year. Investment banks, on the other hand, will sell a fat $9.7 billion worth of research, down just 10%. And of 1,115 independents that Bragg tracks, 131 are no longer operating, up from 76 a year ago. Says one independent about the impact of the settlement expiring: "We have to start over from scratch." (The Financial Times)