A Tiff Over Tires
Sometimes you just have to keep your people happy. That seems to have been President Barack Obama's calculation when he approved, on Sept. 11, a 35% tariff hike on Chinese tire imports for three years, though there's no indication that China is dumping the tires below cost. Why would Obama risk inflaming tensions with a major trade partner? Because the original beef was brought by the United Steelworkers, the dominant union in U.S. tire plants and a key ally in Obama's battle to pass health-care reform. Beijing predictably made outraged noises and on Sept. 14 filed a complaint with the World Trade Organization, arguing that the tariffs are unjustified. For good measure, Beijing suggested it may bring dumping charges against U.S. poultry and auto parts in China. Some analysts worry that the conflict could cast a pall over a late September U.S. visit by Chinese President Hu Jintao as part of a Group of 20 summit in Pittsburgh. The concern seemed validated by Beijing's rapid-fire retaliation, which did not indicate much sympathy for Obama's domestic political pressures. But Chinese officials soon signaled that they'd prefer a negotiated solution rather than a tit-for-tat trade war.
Shoppers Venture Out
U.S. consumers decided in August that it was safe to hit the malls—or at least tiptoe back in. The Commerce Dept. on Sept. 15 said retail sales excluding automobiles increased by a better-than-expected 1.1% from July. As for cars, the cash-for-clunkers program helped inflate sales by 10.6% from the previous month, while gas station revenues were up 5.1%, largely because of pricier gasoline. Other numbers, too, suggested more juice running through the economy, as Fed chief Ben Bernanke noted in calling the recession "very likely over." Overall producer prices jumped 1.7% in August, though they remain 4.3% below their year-earlier level, and the consumer price index rose by a hefty 0.4%. The year-over-year decline in CPI eased to -1.4%, vs. -1.9% in July.
A Bill Business Likes
The Gang of Six delivered at last, and their health-care bill may be the one business favors. After months of talks with five of his Senate Finance Committee colleagues, Senator Max Baucus (D-Mont.) issued his proposal on Sept. 16. It leaves out the controversial publicly financed insurance plan contained in a House bill, but it would require nearly all Americans to buy health insurance starting in 2013, with subsidies for families making $66,000 a year or less. Baucus would levy fat new fees on insurers, medical device makers, clinical labs, and drugmakers to help underwrite the cost of the bill, estimated at $856 billion over 10 years.
The Cost of Health
And what if Congress doesn't come through with sweeping health-care reform? Annual health costs for business will soar 166% over the next decade, to $29,000 per worker, says the Business Roundtable. That's even worse than the prior decade, when costs shot up 131%.
See "Skyrocketing Employer Health-Insurance Premiums"
Obama on the Street
On Sept. 14, the first anniversary of the failure of Lehman Brothers, President Barack Obama came to Wall Street—but not to deliver an elegy. Instead, he pledged to push through reforms he proposed in June to prevent another meltdown. The measures include expanding the Fed's powers, creating a consumer financial protection agency, and giving Washington the clout to break up troubled firms. Most of the proposals are extremely unpopular on the Street, evidenced by the fact that not a single CEO of a major bank was in the audience. The President warned against a return to "reckless behavior" and exhorted the industry to "embrace serious financial reform, not fight it." Congressional action is expected in the fall.
Go to Trial, BofA
Bismarck famously said that legislation, like sausage, is something you never want to see made. Maybe he should have included corporate mergers as well. One whose back room drama and possibly dodgy details are about to be laid bare for all to see: last year's Bank of America (BAC)-Merrill Lynch deal. On Sept. 14 a federal judge rejected for the second time a $33 million settlement BofA had reached with the SEC over charges that it negligently failed to provide its shareholders with details about Merrill's true financial picture before they voted to approve the deal. In his ruling, U.S. District Court Judge Jed Rakoff said the settlement victimized shareholders again, since the fine would effectively come out of their pockets. Rakoff set a Feb. 1 trial date, a move that is likely to result in a public airing of the maneuvers that preceded the deal.
Corus Gets Corralled
If you've ever wanted to own a waterfront condo in Miami, you do now—along with the rest of us. On Sept. 11 federal regulators seized Chicago-based Corus Bank (CORS), which continued to pump money into condo projects in south Florida in 2006 and 2007 even after other lenders had backed away. Regulators had ordered Corus to boost its reserves, then gave the $9 billion bank until mid-June to raise capital or find a buyer. But with bidders unable to value the bank's vast portfolio of vacant or unfinished condo projects, the feds moved in. Other banks deep in commercial real estate could make up the next wave of failures.
'Death Bond' Watch
The Wall Street Journal on Sept. 16 reported that the SEC has created an "agencywide task force" to study so-called life settlements: financial products that allow consumers to sell their life-insurance policies to investment firms, which continue paying the premiums and collect the payouts when the people die. In a July 30, 2007, cover story, BusinessWeek warned of the dangers of the fast-growing market and sounded alarms about Wall Street's efforts to turn the deals into securities. "The investment banks are wading into murky waters," BusinessWeek wrote. "The life settlements industry increasingly finds itself in the grip of dubious characters devising audacious and in some cases illegal schemes to make money."
Pang Passes Away
Danny Pang, the financier accused by the SEC of running a massive Ponzi scheme, died on Sept. 12 after being found unconscious in his Newport Beach (Calif.) home. A county coroner said there was no evidence of foul play and that toxicology tests could take two to three months. Pang, 42, was charged with fraud in April. The complaint said he raised hundreds of millions from Taiwanese investors, promising them guaranteed returns from life insurance and real estate time shares.
Wooing Japan Airlines
One might wonder why several of the world's major airlines seem to be scrapping for a minor stake in a money-losing carrier that's in the process of cutting 6,800 workers. Among the parties involved in talks about a cash infusion of up to $300 million in Japan Airlines: American Airlines parent AMR (AMR), Air France-KLM, and Delta Air Lines (DAL). A successful bidder would grab greater access to Asian markets and likely some of the landing slots JAL controls at Tokyo's Narita airport. JAL has been on the government dole, having received three bailouts since 2001, and is working against a recession that will cause the global airline industry to lose $11 billion this year, said the International Air Transport Assn. on Sept. 15. Its cash quest comes as the U.S. and Japan work on finalizing an "open skies" treaty this year, which could lead to expanded airline alliances and joint ventures in trans-Pacific flights.
Will California's Green Style Work Elsewhere?
California's finances are in a shambles, and its politicians are perpetually feuding. Yet when it comes to green policy the Golden State still stands out as a model—not just for the rest of the U.S., but also for the world. So argues Ronald Brownstein in the October issue of The Atlantic. Brownstein points out that the state's role as "an environmental pace-setter" goes all the way back to the 1940s, when it became the first to establish air pollution controls. In the oil crisis in the early '70s, California was at the forefront of efforts to promote energy conservation. And the Obama Administration used as the basis for nationwide regs a 2002 California law that for the first time curbed tailpipe emissions of carbon dioxide and other greenhouse gases.
One of California's big lessons, says Brownstein, is that regulations can create markets. The state captured nearly three-fifths of the $3.3 billion in venture capital that flowed into clean-tech statups last year—companies making a range of goods from solar panels to electric cars. Yet even Brownstein acknowledges that the California approach may not be easy to replicate in other parts of the country. The combination of a temperate climate, an economy not heavily reliant on power-intensive heavy industry, and households that are smaller than the national average all give California a leg up in the quest for energy efficiency. (The Atlantic)
Elevated at Intel
Who'll get to be top dog? Intel (INTC) on Sept. 14 outlined a new structure that puts three executives in the running to succeed CEO Paul Otellini in a few years. Executive Vice-President Sean Maloney will head up the core Architecture group, which handles chip design and marketing. Dadi Perlmutter, another executive vice-president, will direct product development. The Technology & Manufacturing Group will be headed by former CFO Andy Bryant. Gone in the shuffle is Pat Gelsinger, who co-headed the lucrative enterprise computing unit. On Sept. 14 data storage outfit EMC (EMC) named Gelsinger president and COO of information infrastructure products.