Bernanke Gets the Nod
Four more years! On Aug. 25, Fed Chairman Ben Bernanke won a thumbs-up from President Barack Obama for another four-year term in one of Washington's toughest jobs, starting in February. Obama credited the central banker with "calm and wisdom" as well as "bold action and out-of-the-box thinking." Bernanke's reputation is climbing with every bit of evidence that the economy is ready to leave the intensive-care unit. Home sales in July jumped 9.6% for newly built single-family homes and 7.2% for existing homes. The Standard & Poor's/Case-Shiller U.S. National Home Price Index rose in the second quarter from the first—such a gain hadn't occurred in three years. Durable goods orders grew 4.9% in July, thanks to big gains in aircraft orders. On the other hand, even the Administration concedes unemployment will run close to 10% through next year, and on Aug. 25 the White House said it expects federal budget deficits over the next decade to total $9 trillion.
Banks Falling Fast
Take enough money to your local branch these days, and you might get more than a toaster—you might get the bank itself. The Aug. 21 seizure of Guaranty Bank (GFG) in Texas boosted the number of bank failures to 81 this year—after just 25 last year—and Rochdale Securities analyst Richard Bove estimates that up to 200 more U.S. banks could collapse in the downturn. Any pickup in the pace would put more pressure on federal regulators to loosen the terms they proposed earlier this summer for buyers of failed banks—a move that could bring in more bids from private equity firms, which balked at the stiff capital and cross-ownership standards.
Goldman Sachs (GS) tends to make very big bucks, but recently some of its methods have been called into question. The latest critique came on Aug. 24, when The Wall Street Journal reported that Goldman holds weekly "trading huddles" during which analysts give out stock tips for dozens of favored clients—tips that sometimes differ from research reports that go to its thousands of not-so-privileged investors. Goldman's comment: The information is just short-term "market color" for clients who want to trade a lot, and it is "always consistent with the fundamental analysis" in published research. On Aug. 25, Massachusetts' chief financial regulator subpoenaed the firm, asking for information on the huddles.
P&G Unloads Drugs
After two decades in the prescription-drug business, Procter & Gamble (PG) decided to pull the plug, selling the unit on Aug. 24 for $3.1 billion to Ireland-based specialty drugmaker Warner Chilcott (WCRX). The deal allows P&G to concentrate on its more lucrative over-the-counter business, with such brands as Vicks and heartburn treatment Prilosec. As for Warner Chilcott, which set up in Ireland for tax purposes on Aug. 21, the 100% debt-financed purchase will triple revenues and expand its arsenal to include such medicines as osteoporosis fighter Actonel.
Who'll Drive Opel?
General Motors' new board seems ready to take on the world—or at least the German government. The carmaker looked near a deal to sell a controlling stake in its European Opel unit to Canadian parts maker Magna International and its Russian partner, OAO Sberbank, with $6.5 billion in financing from Berlin. But GM's board declined to decide on Aug. 21, and the company has since asked Germany to finance instead a deal with Belgian investment firm RHJ International. The board also wants to ponder keeping Opel in GM's hands with financing from another source—or letting it go into liquidation. German Chancellor Angela Merkel is desperate to land an Opel deal to preserve 15,000 of the company's 25,000 jobs before a Sept. 27 national election. Someone will have to blink first.
With his state's finances in the dumps, Governor Arnold Schwarzenegger is making like any other struggling family man—he's selling off miscellaneous stuff. Some of the items in what's being called the Great California Garage Sale are listed on eBay (EBAY) and Craigslist. The rest will be sold at a warehouse in Sacramento on Aug. 28 and 29. The inventory includes surplus computers, office equipment, and electronics. Some of the merchandise—jewelry, an antique piano, Sacramento Kings memorabilia—is property confiscated by the state Highway Patrol. The Governator personally signed the visors of 15 automobiles being auctioned off. At press time the highest bid ($7,500) belonged to a 2003 Honda (HMC) Civic Hybrid with 98,000 miles on it.
Ted Kennedy's Legacy
After a struggle with brain cancer, Senator Edward Kennedy (D-Mass.) died on Aug. 25 at 77. Even colleagues who disagreed with his liberal politics lauded Kennedy for his legislative savvy and the connections he built across party lines over a 46-year career. Given his longtime leading role in the push for health-care reform, his absence from Senate negotiations in recent months has made it tougher to find bipartisan compromise; now his vacant seat leaves the Democrats one vote short of the 60 needed to head off a filibuster. Moreover, if Senator Chris Dodd (D-Conn.) opts to give up the chairmanship of the Senate Banking Committee to take over the Health, Education, Labor & Pensions Committee, Kennedy's passing could have big implications for financial services reform as well.
See "Kennedy: Health Care Loses a Champion"
Read This, Kindle
Amazon's (AMZN) e-reader will have a big-name rival this Christmas. On Aug. 25, Sony (SNE) showed off a touchscreen e-book reader that will go page to page with Amazon's popular Kindle devices when it ships this December. The $399 Sony Reader Daily Edition—$100 more than the cheapest Kindle—connects to a wireless bookstore via AT&T's (T) 3G network and lets readers tap the 7-inch screen with a stylus or their finger to turn pages and take notes. The gizmo will join Sony's lineup of two less expensive e-readers, making for a trio that the company figures will expand the market beyond travelers and avid readers.
See "Sony's Family of E-Readers Grows"
Is the U.S. Really a Hotbed of Small Business?
Those who favor the American brand of laissez-faire capitalism over the European version like to point to the dynamism of the U.S. small-business sector. Americans are endowed with the spirit of entrepreneurship, these folks say. And a combination of low taxes, limited regulation, and unfettered labor markets allows them to give that spirit free rein.
But is that argument backed up by the numbers? John Schmitt and Nathan Lane of the Center for Economic & Policy Research published a paper in August asserting that the U.S. lags most European economies—and a few Asian ones—in small-business employment. Using data from the Organization for Economic Cooperation & Development, the pair found that the U.S. ranked second to last out of 22 countries in the proportion of the total workforce that's self-employed, with 7.2%. The U.S. also ranks close to the bottom when it comes to workers employed in small manufacturing outfits—and surprisingly, in computer-related services.
Schmitt and Lane's study, however, has already come in for its share of opprobrium. One critic, writing on the Small Business Labs Web site, points out that the OECD numbers only include the unincorporated self-employed. When other measures are used, the U.S. moves much closer to the overall European rate. (Center for Economic & Policy Research)