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Executive Summary

Health-Care About-Face

Just when it seemed to be left for dead, he brought out the defibrillators. Senate Majority Leader Harry Reid (D-Nev.) shook up Washington on Oct. 26 with an announcement that health reform legislation must include a government-funded insurer, the so-called public option, days after the Finance Committee issued a bill without any such plan. Reid's stance placated liberals but angered lots of others. He admitted he would need all 58 Democratic senators and two Independents to immunize the bill against a filibuster, since no Republicans back a public plan. And rounding up 60 votes doesn't seem likely. Independent Senator Joseph Lieberman of Connecticut immediately said he would join with the GOP to fight a public plan, and at least three moderate Democrats have expressed reservations. The drama now shifts to the House, where members say their version of health reform could move to the floor in early November.

Housing on the Mend

Home prices continue to inch up the stairs from the basement. In August, for the third month in a row, the Standard & Poor's/Case-Shiller 20-City Home Price index improved, and it now stands 3% higher than its May low—though it's still 30% below its peak in May 2006. Sales numbers in September, on the other hand, weren't so stellar. The National Association of Realtors said that existing-home sales reached their highest level since July 2007, rising by 9.2% from a year earlier. But sales of new homes were surprisingly slow, down 7.8% from last September, said the Census Bureau and the Housing & Urban Development Dept. Meanwhile, consumer confidence, after dipping in September, slid further in October, with the Conference Board's index falling 5.7 points, to 47.7. While the index remains 89% above its February bottom, it has essentially stalled over the past five months.

Too Big to Fail?

Call it the AIG (AIG) problem: How to prevent huge and complex financial institutions from holding the taxpayer hostage when they begin to totter. The Treasury and Representative Barney Frank (D-Mass.), the powerful chairman of the House Financial Services Committee, on Oct. 27 unveiled legislation that would give the Fed and other regulators the authority to keep close tabs on potentially dangerous firms and dismantle them quickly and cleanly if they fail. The bill proposes that financial houses with more than $10 billion in assets share the cost of doing so. Although wrangling over the details is certain—some lawmakers balk at giving the Fed much more power—industry has broadly backed the concepts, and Congress is desperate to show progress in addressing the causes of the meltdown.

A Giant Bank Shrinks

ING Group (ING), saved by $14.9 billion in bailout cash last year, is being cut down to size. Under pressure from the European Union, the once-mighty global player will shrink into something closer to a regional Benelux bank. ING said on Oct. 26 that it would split off its insurance business, including ING Direct USA, from its banking unit. ING will also raise $12 billion to pay back bailout money. The bank figures its balance sheet will shrink to 45% of its $2 trillion peak by 2013. The news pummeled ING's stock, which fell 18% on Oct. 26. That dragged down the shares of other bailed-out banks such as Britain's RBS and Lloyds Banking Group (LYG) on speculation that they, too, could be nudged to break up.

Peltz Comes Calling

Diamonds. Hamburgers. Ketchup. What do they have in common? They've all drawn intense interest from activist investor Nelson Peltz, who bought stakes and pushed for change at Tiffany (TIF), Wendy's (WEN), and H.J. Heinz (HNZ), among other companies. Now Peltz has a new target, money manager Legg Mason (LM), whose mutual funds performed disastrously during the downturn, causing customers to decamp. Peltz started buying shares heavily this summer through his hedge fund, Trian Fund Management, and having accumulated a 4.3% stake, he demanded and won a board seat. In exchange, Peltz agreed not to buy more than 9.9% of the company.

More Galleon Fallout

The charges of insider trading at Galleon Group have touched another prominent business figure: Hector Ruiz, former CEO of Advanced Micro Devices (AMD). On Oct. 27, The Wall Street Journal reported that Ruiz is the executive who federal authorities say tipped off Danielle Chiesi about the timing and structure of last year's massive reorganization of AMD. Chiesi, who worked at New Castle Funds, is one of six people facing charges in the Galleon matter. Ruiz, who has not been charged and declined to comment, is now chairman of GlobalFoundries, the chip manufacturer that AMD spun off with help from Abu Dhabi's investment arm.

AMD Exec's Loose Lips Help Sink Galleon

What the Next Census Will Tell Marketers

Reported Missing: the Average American, a.k.a. Jane and Joe Consumer. Odds of locating: slim to none. That's one of the conclusions of a white paper from Advertising Age titled "2010 America." Penned by Peter Francese of Ogilvy & Mather, the paper delves into the demographic changes likely to be revealed by the 2010 census and the attendant challenges for marketers.

While data from the census won't start trickling out until March 2011, some trends can already be glimpsed. First and foremost, gone are the days when advertisers could aim at a single broad demographic. In the 10 largest cities, no racial or ethnic group constitutes a majority. By 2010, white non-Hispanics will make up 80% of the population aged 65 and up but just 54% of Americans under 18. Also, the county's center of gravity is shifting fast. Over the past decade, 85% of population growth occurred in the South and West, while the Northeast and Midwest shrank.

The census will also give marketers a clearer picture of American families than they've ever had, as respondents will have 14 choices to describe their households. Francese projects that by 2010 the most prevalent household will be a married couple with no kids, followed closely by single-person homes—while marrieds with kids will tally a mere 22% of all households.

AIG, Meet 'AIG Two'

Insuring well may be the best revenge for Maurice "Hank" Greenberg, former CEO of AIG. Greenberg was bounced after an accounting scandal but is still AIG's top shareholder after the U.S. government. On Oct. 27, The New York Times described Greenberg's efforts to build his new company, C.V. Starr, into a complex web of insurers similar to the one he wove at AIG. Greenberg has hired 13 former AIG executives, raising concerns that he will snatch business away from AIG and harm its prospects of returning $121 billion in bailout money. In a statement issued after the Times story appeared, C.V. Starr argued that other firms have hired many more people away from the crippled behemoth, and that the exodus is due to Washington's mismanagement.

Marchionne Revs Up

Fasten your seat belts—here comes Chrysler Italiano. Fiat (FIATY) CEO Sergio Marchionne will deliver his fix-it plan for Chrysler on Nov. 4. Controlling owner Fiat aims to use its engineering works to make compact and midsize cars for Chrysler and will offer the Fiat 500 subcompact in the U.S. Various Dodge models, including the Grand Caravan, and several Jeeps will disappear. And Fiat's Alfa Romeo brand will build an SUV based on the Jeep Grand Cherokee. Also on the auto front, Bloomberg reported on Oct. 28 that lender GMAC Financial Services is looking for a third bailout from the Treasury—between $2.8 billion and $5.6 billion on top of the $13.5 billion it has already soaked up. And Ford (F) said on Oct. 28 that China's Geely Automotive is the lead candidate to buy Volvo.

Black, White, and Unread

It's hardly a revelation that more people are giving up newspapers and opting to read news free online. On Oct. 26 the Audit Bureau of Circulations said that daily readership fell a steeper-than-expected 11% for the six months ending in September, with the San Francisco Chronicle leading losers with a 25.8% plunge. But the overall drop was partly self-inflicted by publishers, many of whom are raising prices and cutting circulation on purpose to control costs, aiming to bring in more dollars by selling fewer papers. What's more, it may be working. Circulation revenues at newspaper group Media General (MEG) rose 11% in the third quarter. New York Times Co. (NYT) saw a 7% climb. Whether those gains can offset vanishing ads is the conundrum keeping weary publishers up nights.

A Bump for Baidu

Baidu (BIDU), the emperor of online search in China, reported another scintillating quarter on Oct. 26: a 42% profit surge, to $72 million, on a 39% sales increase, to $187 million. With performance like that, no wonder Google (GOOG) has made little headway in China, where Baidu has about two-thirds of the market. However, Baidu stock promptly sank 13%. Why? Because the Nasdaq-listed company also mentioned that it's bracing for a revenue hit in the fourth quarter, when it will shift to a new management system for its advertising. The stock bounced back in the following days and is still up 90% over the past 12 months.

Soros' New Think Tank

"The entire edifice of global financial markets has been erected on the false premise that markets can be left to their own devices." Them's fightin' words, and that's exactly what liberal billionaire investor George Soros has in mind. On Oct. 27, Soros pledged $50 million over 10 years to create an Institute for New Economic Thinking that will seek "alternatives to the prevailing dogma" of classical economics. Soros' mission statement continued: "We must find a new paradigm and rebuild from the ground up." Founding advisers include Nobelist Joseph Stiglitz and former International Monetary Fund chief economist Kenneth Rogoff.

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