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The Fed Takes Decisive Action

At least for now, he's Ben Bernanke the Bold. Faced with numbers that suggested an economy in deeper trouble than most experts figured, the Fed monarch and his knights of the Federal Open Market Committee knocked 50 basis points off the key rate at their Sept. 18 meeting, to 4.75%. That's double what many expected, sending a signal that the Fed won't obsess about inflation while housing threatens to drag the economy into recession.

Wall Street shouted huzzah, sending the Dow up 335 points and 76 more the next day. The credit markets also responded positively. That's partly because the FOMC's statement, while agnostic on the subject of future cuts, pointedly toned down references to the inflation bugbear. The August core consumer price index cooperated by coming in at a modest 0.2% increase. Bernanke is far from out of the woods, but he's wielding his swift sword.

Wall Street is finally coming clean about some of its exposure to risky credits. Merrill Lynch (MER) got the confessional season rolling on Sept. 14 when it disclosed in a regulatory filing that it had marked down the value of some investments, though it didn't name a dollar figure. Then came E*Trade (ETFC), which slashed its full-year profit forecast on Sept. 17 after reporting steeper-than-expected losses in online mortgage lending. Lehman Brothers (LEH) on Sept. 18 said it had marked down the value of its mortgage holdings and risky loans by a hefty $700 million, but allowed that third-quarter earnings weren't as bad as Street expectations. And Morgan Stanley (MS) on Sept. 19 spread the gloom by reporting a 17% profit slide.

See "Investment Banks' Kitchen-Sink Quarter"

Microsoft (MSFT) isn't used to losing battles, but it suffered a grievous reversal on Sept. 17. The European Court of First Instance ruled it has to obey a 2004 order by the European Commission to share confidential networking protocols with rivals and offer a version of Windows without a built-in copy of the audio and video Media Player. The court also upheld a record $613 million fine. The verdict's impact may be enormous, because the EC now has the weapons in its legal arsenal to press for more changes in the company's behavior and to go after other tech behemoths such as Intel (INTC). Microsoft is pondering an appeal.

See "Microsoft's Big European Defeat: What Now?"

Subprime contagion spread across the pond in a big way as British mortgage lender Northern Rock suffered an old-fashioned bank run after its lines of credit dried up. The Bank of England rushed in on Sept. 18 to guarantee deposits.

Wal-Mart (WMT), continuing to combat criticism of the way it treats staff, said on Sept. 18 that it will expand a lower-cost health plan it began offering last year. As of Jan. 1 workers will be eligible for credits of $100 to $500 to defray expenses on the low-premium, high-deductible coverage. In addition, enrollees will be able to buy more generic prescription drugs at $4.

Former Fed Chairman Alan Greenspan's memoir, The Age of Turbulence, appeared on Sept. 17, prompting a storm of comment.

How do you signal the overhaul of a notorious underachiever? Move it. That's what Time Warner (TWX) is doing with its long-suffering AOL service, which will leave its Dulles (Va.) home for Manhattan to help it tap into the Madison Avenue advertising scene. Converting the subscription service to a freebie, Time Warner will make AOL the centerpiece of its online ad strategy. It has also been snapping up online ad outfits.

They worked all week, often into the wee hours. But as of press time on Sept. 19, the United Auto Workers and General Motors (GM) hadn't struck a deal that would likely set a precedent for Ford (F) and Chrysler. GM wants to offload its $50 billion in retiree health-care liabilities onto the union in exchange for giving the UAW roughly $35 billion in cash and assets. The union is game but wants a heavier load of cash to ensure the fund's long-term health.

President George W. Bush on Sept. 17 named former federal judge Michael Mukasey as his nominee for Attorney General. While Mukasey boasts solid conservative credentials on national security, he's not a Bush crony and thus may be acceptable to Democrats. It's unclear how he'll come down on business issues.

The world's No. 1 food maker will hand the chef's toque to a newbie in its kitchen. Two Swiss newspapers reported on Sept. 16 that Chief Financial Officer Paul Polman will take over from CEO Peter Brabeck next spring. Unlike earlier CEOs who rose through the ranks, Polman, 51, joined Nestl? (NSRGY) only two years ago from Procter & Gamble (PG). He's an aggressive cost-chopper.

Attorney William Lerach, who once struck fear into American business by bringing shareholder lawsuits, agreed to plead guilty to one conspiracy count on Sept. 18. He'll forfeit $7.5 million, pay a $250,000 fine, and do one to two years in jail. Another ex-partner of the firm now called Milberg Weiss has pleaded guilty, and one other has been charged, as has the firm itself. The New York Times said on Sept. 19 that prominent partner Melvyn Weiss would be charged the next day. The feds say the firm paid kickbacks to lead plaintiffs.

Hell hath no fury like an anchor scorned. Dan Rather, who for 24 years chaired the CBS (CBS) Evening News, filed suit against the network on Sept. 19, charging that it made him the "scapegoat" for a botched 2004 broadcast on President George W. Bush's Texas Air National Guard service during the Vietnam War. He's also suing CBS CEO Leslie Moonves, erstwhile CBS parent Viacom (VIA) and its chief, Sumner Redstone, and ex-CBS News President Andrew Heyward. Rather wants $70 million for violation of his contract and damage to his reputation. CBS, he says, gave him skimpy airtime on 60 Minutes after forcing him to quit as news anchor in September, 2005. At the time of his ouster, Rather was presiding over a prolonged plunge in the ratings of the Evening News, which lagged far behind rival shows on NBC and ABC (DIS). He now anchors a newsmagazine on Mark Cuban's cable channel, HDNet. The network sniffed at its onetime star, saying in a statement: "These complaints are old news, and this lawsuit is without merit."

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