Jawboning the Banks
"I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street." That's what Barack Obama told 60 Minutes the day before a Dec. 14 session with leaders of 12 big banks. Obama summoned the financiers to express his frustration with their skimpy level of lending. At the meeting, the bankers obediently said they'd lend more and personally back reform. One version of such a bill passed the House on Dec. 11, featuring a Consumer Financial Protection Agency and imposing new fees and capital requirements on big banks.
But the Administration is rapidly losing leverage. Both Citigroup (C) and Wells Fargo (WFC) announced plans to repay $20 billion and $25 billion in TARP bailout money, respectively, issuing new shares to raise capital and shaking off Washington controls. While many analysts fear that Citi in particular isn't ready to fly solo, the White House gave its blessing. Maybe the economy will cooperate: At its rate-setting meeting on Dec. 16, the Fed offered its most upbeat evaluation in months and left rates at near-zero.
Meanwhile, Bank of America tapped Brian Moynihan, head of the lender's consumer banking unit, as its next CEO.
Abu Dhabi to the Rescue
Faced with the prospect of imminent default by a company closely linked to the government of Dubai, deep-pocketed Abu Dhabi had little choice but to pony up $10 billion to assist its fellow emirate. Part of the sum will help pay a $4.1 billion Islamic bond for Nakheel, the real estate subsidiary of Dubai World. That brings Abu Dhabi's bailout total to $25 billion—and Dubai isn't out of the desert yet. The emirate may need to restructure more than $40 billion in debt, and the price it will pay for the lifeline is not clear. Analysts speculate that Abu Dhabi may demand a stronger say in Dubai's financial management or grab stakes in key companies such as Emirates airline and Dubai Aluminum. Meanwhile, Citigroup said on Dec. 16 that the Abu Dhabi Investment Authority had filed an arbitration claim trying to abort a 2007 agreement to buy $7.5 billion of Citi stock at eight times today's price. ADIA is seeking $4 billion in damages if the deal is upheld, Bloomberg reported. Citi said the claim had no merit, while ADIA said it would "pursue its legal rights fully."
See "Abu Dhabi May Wrest Power from Dubai"
Public Option, R.I.P.?
For now, the fate of health-care reform appears to hang on the vote of one person: Senator Joe Lieberman, the Connecticut independent. On Dec. 14, Lieberman derailed a compromise pieced together by Senate Majority Leader Harry Reid. Lieberman said he would withhold his crucial 60th vote because the bill contained both a watered-down public insurer option and a Medicare buy-in option—though he had supported both policies months earlier. The Democrats axed the proposals, alienating liberals and many House members. The compromised compromise will likely come to the floor during Christmas week.
Two strapped European nations presented plans to tame their raging deficits—one to cheers, the other to jeers. Ireland on Dec. 10 pledged to slash its 12%-of-GDP deficit, four times the European Union's agreed limit, to 3% by 2013—and backed the pledge with severe spending cuts. Four days later, Greek Prime Minister George Papandreou promised to cut his country's deficit, now at 12.7%, to 3% by 2013, but his speech was short on concrete measures, so investors continued to dump Greek bonds. On top of that, Austria on Dec. 14 seized its failing, sixth-largest lender, Hypo Group Alpe Adria. All the jitters combined to drive the euro down to $1.45, its lowest since October.
The Dreamliner Flies
It took more than two years, but Boeing's (BA) 787 Dreamliner finally got off the ground. (Although the first test flight, around Seattle on Dec. 15, was cut short by foul weather.) Now comes a rigorous testing program over the coming year to obtain government certification ahead of a planned delivery in late 2010 to launch customer All Nippon Airways. The plane promises to reduce fuel burn by about 20% over existing models because of its lighter carbon-fiber frame. That has made the 787 the hottest new model in Boeing history, with 840 firm orders.
Exxon Goes for Gas
ExxonMobil (XOM) CEO Rex Tillerson suggests it may take awhile before the wisdom of his Dec. 14, $41 billion acquisition of XTO Energy (XTO) is obvious. XTO drills for "shale gas," a type of fuel obtained by injecting huge amounts of water and chemicals into hard subterranean rock. While natural gas is viewed as an ideal bridge fuel until alternative energy has a chance to develop, there's rising concern among environmentalists about the production technique fouling groundwater. "We'll probably suffer a little bit in the near term as we put [the companies] together," Tillerson told analysts. "This is really about value creation over the next many years."
Did Samuelson's Followers Go Astray?
By any measure, Paul Samuelson was a giant in the field of economics. The Nobel laureate, who died on Dec. 12 at the age of 94, is widely credited with bringing mathematical rigor to the dismal science. But a pair of economists at Middlebury College argue that his legacy "has paralyzed the best brains in the Anglo-Saxon branch of the profession for the last three decades."
Don't blame the professor—blame his pupils. In a forthcoming paper, "Sins of the Sons of Samuelson," David Colander and Casey Rothschild explain that Samuelson's sensibility was shaped by his training in classical economics. He viewed the economy as a complex system in which models could only be used as aids to judgment, not as direct guides to the real world. Succeeding generations, however, became enamored of the models themselves, to the point that "more and more economists came to believe that if an idea couldn't be reduced to a mathematical model...it probably wasn't worth knowing," say the authors. This loss of historical perspective, they argue, is one of the reasons that most economists didn't see the financial crisis coming. ("Sins of the Sons of Samuelson," David Colander and Casey Rothschild)
Notch a win and a loss for the so-called Wintel PC duopoly. European Commission regulators on Dec. 16 ended an 11-year struggle with Microsoft (MSFT), settling remaining antitrust issues after the company agreed to offer rival browsers alongside Internet Explorer. But the same day, after a long investigation, the U.S. FTC accused chip behemoth Intel (INTL) of using its dominant position to shut out competitors, saying Intel has been "running roughshod over the principles of fair play." The chipmaker fired back that the FTC is trying to write new rules for curbing business. That line of defense may prove a hard sell: Regulators in Asia and Europe have fined Intel more than $1 billion because of pricing incentives that reward PC makers for using its chips.
Is the 800-pound search gorilla about to take on the cell-phone giants? Google (GOOG) has given some staffers a touch-screen device to try out, igniting speculation that early next year it will offer consumers a cell phone directly and through carrier T-Mobile USA. That could pit Google not only against Apple's (AAPL) iPhone but also against allies like Motorola (MOT), Samsung, and Sony Ericsson, which have adopted Android, mobile-phone software that Google helped create.
Shakeup at Samsung
South Korea's largest company, Samsung Electronics, short-circuited tradition on Dec. 15 by elevating a design and marketing guy rather than an engineer to the corner office. Choi Gee Sung, head of the TV and cell-phone business, becomes CEO, and Lee Jae Yong (also known as Jay Y. Lee), the only son of former Chairman Lee Kun Hee, assumes the new post of COO. Analysts describe the move as part of a plan to place the scion of the founding Lee family at the controls.
See "Apple Envy Drives Samsung Shakeup"
The Optimism Meter: The Bulls Get Happy
The Meter climbed to 48 on Dec. 15, up from 44 a week earlier, despite a downbeat outlook for the U.S. job market. That's mainly because of increasing bullishness as stock-market volatility neared a low not seen since August 2008. Developed by Bloomberg BusinessWeek using data from pollster YouGov, the Meter is a proprietary measure of sentiment and expectations, economic statistics, and market forecasts. It tracks shifts in outlook among individuals, professional investors, and economists about jobs, markets, and growth.
* Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest
Data: YouGov, Bloomberg BusinessWeek