The slow-motion ethics scandal chasing Representative Charles Rangel finally caught up with him. On Mar. 3 he announced he would temporarily step down as chairman of the tax-writing House Ways & Means Committee. The New York Democrat, a member of Congress since 1971, was scolded the previous week by the House for breaking rules on accepting gifts, and he remains under investigation by the House Ethics Committee for, among other things, allegedly failing to disclose income from a rental villa and enjoying the use of four rent-regulated apartments in Harlem. A House colleague told Bloomberg News that Rangel will be replaced for now by California Representative Philip Stark, a member since 1973. Expect a tussle over whether to replace Rangel permanently and with whom.
In other Washington news, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) appeared to be nearing a compromise on financial reform. Dodd agreed on Mar. 1 to a proposal from Senator Bob Corker (R-Tenn.) that an agency to shield consumers from financial fraud be housed within the Fed rather than existing as an independent entity. Wall Street has been lobbying against a freestanding agency.
Greece Tightens Again
Under intense pressure from bond vigilantes and the European Union, Greece cinched its belt one more time on Mar. 3, announcing a further $6.5 billion in budget cuts to tame its raging deficit. Vacation pay for government workers will be slashed by 30%, the value added tax will increase to 21% from 19%, and a grab-bag of other taxes will rise. The cutbacks helped soothe financial markets, which sent the euro to a 10-month low against the dollar on Mar. 2 amid talk of a bailout that might involve state-run banks buying Greek bonds. A day earlier the British pound also slid to its lowest point since May 2009 on fears of Britain's monster deficit.
A Vacancy at the Fed
Fed Vice-Chairman Donald Kohn, a trusted adviser to Chairman Ben Bernanke and his predecessor, Alan Greenspan, said on Mar. 1 that he will step down in June after a 40-year Fed career. That gives President Barack Obama the chance to fill his seat as well as two other vacancies on the seven-member Board of Governors, which sets monetary policy and helps regulate the financial system. Bloomberg News reported that the White House contacted MIT economist Peter Diamond about filling one of the openings.
The biotech sector was shaken up on Mar. 1 by takeover offers—one friendly, one not. Germany's Merck (not to be confused with Merck & Co., the U.S. pharma) said it would buy U.S. drug-technology provider Millipore (MIL) for $6 billion in cash, or $107 a share, a 13% premium. Cancer-drugmaker OSI Pharmaceuticals (OSIP) received a hostile bid from Japan's Astellas Pharma of $3.5 billion, or $52 a share. Investors betting on a higher bid pushed OSI stock from 37 to 56. After OSI's board rejected the offer, Astellas filed suit, alleging that OSI wasn't acting in investors' best interests.
Lutz Hits the Off-Ramp
After 47 years in the car business, General Motors Vice-Chairman Robert Lutz announced his retirement on Mar. 3. The gravel-voiced executive, 78, had at least three acts. At Ford, he scored marketing victories in Europe by making the Escort a hot seller. He championed the flashy sports coupes and the PT Cruiser retro wagon that rejuvenated Chrysler in the 1990s. After joining GM on Sept. 1, 2001, he sparked an unexpected design renaissance with the Chevrolet Malibu and Cadillac CTS. In an unrelated move the company shook up its marketing staff. GM-North America President Mark Reuss cut out a layer of management by disposing of the general managers for each brand, though each division will have a sales and marketing boss. The move gives dealers a shorter line to Reuss. It also shows that the rising executive has the confidence of Chairman and CEO Ed Whitacre Jr. The company did hit one pothole this week: On Mar. 2, GM said it will recall 1.3 million compact cars because of power-steering problems.
See General Motors Executive Lutz Announces Plan to Retire May 1"
AIG Offloads a Big One
Cheer up, U.S. taxpayers: AIG is coming into some real money, and this time it's not from you. On Mar. 1, Britain's Prudential agreed to pay $35.5 billion in cash and stock for American International Group's (AIG) Asian life insurance unit, AIA Group. The move boosts Prudential's business in Asia and allows AIG to skip a time-consuming IPO it had been planning to launch for AIA. The biggest by far of 20 asset sales made by AIG since its $180 billion federal bailout, the deal provides a hefty premium over earlier bids. The Federal Reserve Bank of New York will get $25 billion of the proceeds when the deal is completed sometime this year. The noncash portion, $10.5 billion in Prudential securities, will be sold over time, and that money will also go to repay taxpayers.
Apple Takes Off the Gloves
In the years since Apple (AAPL) launched the iPhone in 2007, Google (GOOG) has risen to become a dangerous, if distant, challenger with its Android phone software. Normally content to compete in the marketplace, Apple took an uncharacteristic step on Mar. 2 by seeking an injunction from the U.S. International Trade Commission that would stop phonemaker HTC from selling its Android-based models in America. Apple also sued HTC, claiming infringement of 10 patents including one related to the iPhone's multitouch screen. Apple isn't going after Google directly, at least not yet—but this is only the latest shot in a rapidly escalating firefight.
The Optimism Meter: Is the Economy Getting Better?
The Meter edged above 50 for the first time since mid-January, clocking in at 53 on Mar. 2. While only 25% of Americans think the economy is actually getting better, that's a vast improvement from a year ago, when just 9% were optimistic. 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 evaluates shifts in outlook among individuals, professional investors, and economists in the areas of U.S. economic growth, jobs, equity markets, and real estate. (Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest)
Data: YouGov, Bloomberg BusinessWeek
Internet Censorship: Showdown at the WTO?
The battle against China's Internet censorship may be moving to a new arena: the World Trade Organization. A Mar. 2 Bloomberg News report by Mark Drajem says the Obama Administration is weighing whether to file a WTO complaint against Beijing's Net restrictions on access and content, on the grounds that they discriminate against U.S. companies and online commerce. China is the world's biggest Internet market, with 384 million Web users at the end of 2009, according to the China Internet Network Information Center, which registers domain names.
Leading the charge are two industry groups with links to a roster of big-name American tech companies, including eBay (EBAY), Google (GOOG), Microsoft (MSFT), and Red Hat (RHT). They are the Computer & Communications Industry Assn. and the First Amendment Coalition. U.S. Trade Representative Ron Kirk confirmed in a Feb. 23 interview with Bloomberg that his office is studying proposals submitted by the two groups.
Washington could have a tough time making the case that China's censorship rules hamper trade, say experts. "Censorship per se is not a violation of the WTO," notes Warren Maruyama, former general counsel of the U.S. Trade Representative's office. "You would have to show the violation of some specific WTO rule." Nor is a filing likely to lead to a speedy resolution. Disputes before the WTO can take two years or more to litigate and appeal. (Bloomberg News)