News for Last Week (WSJ)

Sept. 19 - 23

United States

The Federal Reserve launched a more aggressive package of measures than expected as the global economy drew closer to another recession. Fresh data pointed to a decline in manufacturing activity in both China, a critical engine of the recovery, and Europe, and rival parties in Europe and the U.S. remain divided on how to respond. The Fed's latest move was to shift its $2.65 trillion securities portfolio further than previously planned toward long-term U.S. Treasury bonds—the Twist, as it's called—and, in a surprise move, toward mortgage debt. The aim is to lower interest rates, boosting investment and spending and jump-starting the housing sector. Three of 10 voting Fed officials were opposed.

The weakened U.S. economy will depress housing prices for years, restraining consumer spending, pushing more homeowners into foreclosure and clouding prospects for a sustained recovery, economists, builders and mortgage analysts predict. Home prices are expected to drop 2.5% this year and rise just 1.1% annually through 2015, according to a survey released Wednesday. One in five Americans with a mortgage now owes more than his or her home's value, and $7 trillion of homeowners' equity has been lost in the bust. The fallout is broad. ShopperTrak said in a new forecast that national retail sales would rise by just 3% in November and December from a year earlier. Some parts of the country will do better than others: census data out this week showed that many of the nation's most educated people continue to cluster in a handful of dominant metropolitan areas such as Boston, New York and Silicon Valley, redoubling those regions' advantages. "In a knowledge economy, success breeds success," said a Brookings fellow of the findings.

The "Don't ask, don't tell" ban on gays serving openly in the military was lifted, the end of an 18-year policy under which more than 14,000 service members were discharged. "I think it will be pretty unremarkable across the military," said Gen. Carter Ham, who helped lead a study of the likely impact, "and I think that is the way it should be."

The U.S. accused leaders of the Full Tilt Poker website of defrauding thousands of online poker players out of more than $300 million in a "global Ponzi scheme," part of a broader crackdown on the industry. Before the crackdown, one research firm estimated there were 1.7 million active poker player accounts in the U.S. from players wagering about $14 billion a year online. And on the high-tech edge of law enforcement, the role of the "stingray" cellphone-tracking device in nabbing a hotly pursued man the FBI calls "the Hacker" is driving a constitutional debate about whether the Fourth Amendment—which prohibits unreasonable searches and seizures but pre-dates the digital age—is keeping pace with the times. The stingray mimics a cellphone tower.

Aboriginal Australians may be directly descended from the earliest of several human groups that left Africa and colonized the world, new genetic evidence suggests, in a challenge to a widely held model that argues for a single dispersal from Africa.

Politics

Obama set forth a new plan to cut the federal budget deficit by $3.6 trillion over 10 years, folding in his $447 billion jobs bill and including $1.5 trillion in tax increases. Revving up the campaign engines, he threatened to veto any bill that cuts Medicare benefits without raising taxes on corporations or the wealthy. Republican leaders have ruled out tax increases. To charges of class warfare over the plan's "Buffett rule," aimed at preventing millionaires from paying lower taxes than middle-class Americans, the president said, "This is not class warfare. It's math." It was a base-energizer, but the Buffetts of the world aside, most people with taxable income of $1 million or more already are taxed at a much higher rate than middle-class earners.

Congress needs to pass a funding bill before the fiscal year ends Sept. 30, but Democrats want to provide a lot more for disaster relief than Republicans. They're testing the limits of the antideficit push and hoping to show that government can play a crucial role in some areas; Boehner, for his part, is having more trouble mustering votes.

Obama is set to replace key planks of George W. Bush's signature No Child Left Behind law, allowing many schools to escape looming punishment if their states adopt a new set of standards.

Front-runners Perry and Romney clashed over Social Security and health care in a GOP presidential debate.

World

Economic output in the euro zone contracted for the first time in more than two years. European banks face about $411 billion in potential losses from the euro-zone debt crisis, the IMF said, as it urged them to raise capital to protect the global economy. Greece, scrambling to meet fresh austerity demands from its international creditors in exchange for aid, is to cut pensions, tax low-income earners and put some 30,000 government workers on 60% of their salary for a year.

The U.N. was a hothouse as Palestinian leaders pressed ahead with a bid for full membership. Obama, facing attacks on his foreign policy from leading Republican presidential candidates, implored the U.N. to hold off on a vote, saying Israel and the Palestinians must work out a peace deal on their own. Ahmadinejad told the General Assembly that Tehran wouldn't recognize Israel's right to exist, regardless of any U.N. move to grant statehood to the Palestinian people, even as Iran released on bail two American hikers who had been held for two years. With a series of close encounters between American and Iranian forces in the Persian Gulf, U.S. officials are considering a direct military hot line with the Islamic republic. The international community pledged to help rebuild Libya, as the country's new government took its place on the world stage. Libya started pumping oil again for the first time since the toppling of Gadhafi, but poor security and damage to the country's network of ports and oil terminals could delay the large-scale resumption of exports to Western markets.

U.S. Joint Chiefs Chairman Mullen said support for terrorism was part of the Pakistani government's strategy, in a rare public condemnation in the wake of last week's insurgent attack on the U.S. Embassy in Kabul. Afghanistan's intelligence agency accused the Taliban's top leadership in Pakistan of orchestrating the assassination of Burhanuddin Rabbani, Afghanistan's most prominent peace negotiator and a former president. Rabbani was killed at his well-protected Kabul home by a purported Taliban envoy. The slaying and the charges could make it increasingly difficult for Washington to pursue negotiations with the insurgent group. In eastern Africa, the U.S.—keen to follow up on its killing of bin Laden with operations to destroy his terrorist organization—is deploying a new force of armed drones, escalating its campaign to strike at militant targets of all kinds and expand intelligence on extremists. And continued violence in Yemen raised the prospect that the impoverished country could be nearing factional war.

A U.S. decision to sell Taiwan upgrades of old fighter jets, rather than new planes, reflected a fresh reality in the region. All sides are calculating that the island is increasingly indefensible against an attack by China and are banking on closer economic ties to help resolve historic tensions.

Business

Hewlett-Packard's board ousted CEO Apotheker and named former eBay chief Whitman to succeed him. Just last month, with the board's blessing, Apotheker announced a plan to revamp H-P by splitting off or selling its PC business and spending $10.3 billion to acquire British software company Autonomy, sending the company's shares plunging. "I think the strategy is right," said Whitman, 55. "I will obviously step back and take a hard look at this." Apotheker's brief but turbulent tenure, in which Hewlett-Packard's market value was nearly sliced in half, is the latest setback for a company buffeted by a decade of board acrimony, abrupt CEO departures and strategic drift.

Groupon said it was cutting its reported revenue in half, and its No. 2 executive left the company. Regulators have been scrutinizing Groupon's accounting since it filed for an IPO that could value the daily-deals pioneer at $20 billion. Elsewhere in tech, Schmidt acquitted himself pretty well as senators probed whether Google has abused its growing dominance of the Web. "Many of us in Silicon Valley have absorbed the lessons of that era," he said, alluding to the antitrust case against Microsoft, but saying of the lawmakers' concerns, "We get it." Netflixchief Hastings thinks he's learned some lessons himself, and said the separation of his DVD-by-mail business from his Internet movie-streaming service was essential, despite many angry customers.

A proposed four-year labor agreement between General Motors and the United Auto Workers points to a future in which workers trade the guarantee of gold-plated wages and benefits for job security and pay increases tied to the company's health. The agreement would give workers richer profit-sharing checks and restore thousands of union jobs. In exchange, workers would forgo cost-of-living increases, which have long been a way of life in Detroit. Higher-wage workers would get inducements to leave, paving the way for lower-paid hires, while lower-wage workers would get a bump. The union is now negotiating contracts with Ford Motor and Chrysler Group.

United Technologies agreed to buy aircraft-components maker Goodrich for $16.4 billion, its biggest acquisition ever and a signature deal for Chief Executive Louis Chenevert. The purchase strengthens UT's commercial aviation business at a time when the industry's order books are full and brings Chenevert a deal big enough to add measurably to a company that expects to reap $58 billion in revenue this year. It sets United Technologies apart from conglomerates like Tyco International, which announced plans this week to break into three. On the financial front, solid borrowers are getting ready access to M&A financing, as shown by the flood of loan offers to UT for the Goodrich deal.

News Corp.'s U.K. newspaper unit plans to pay about $4.7 million in connection with allegations that its News of the World tabloid hacked unto the cellphone voice mail of murdered teenager Milly Dowler in 2002, according to people familiar with the matter. It would be by far the company's largest payout tied to phone-hacking allegations.

Markets

Global investors dumped everything from stocks to corporate bonds to foreign currencies and fled to the relative safety of U.S. Treasurys, fearing a Greek debt default and another recession, even after leaders from the G-20 vowed a "strong and coordinate response" to preserve the stability of financial markets. The Dow industrials dropped 6.41%, their worst week since October 2008, a slide accelerated by a warning from FedEx on the pace of global trade. Currency traders rushed for safe havens, with the dollar and the yen emerging as islands of strength. The wave of selling even swamped gold and silver on Friday, as investors rushed to cash out of profitable investments to make up for losses elsewhere.

Prosecutors expanded the case against Kweku Adoboli, the accused UBS rogue trader, to include allegations that his illegal activity dated back to 2008. The total amount of losses involved also grew, to $2.3 billion. Meanwhile, the UBS board met in Singapore to discuss the bank's internal investigation as speculation swirled about the fate of the company's chief executive and the head of its investment-banking division. UBS wasn't the only bank worried about possible rogue trading. British regulators are reportedly looking at multiple cases of improper or unauthorized trading at banks there, and top executives are said to be scrambling to assess whether they are similarly vulnerable.

A new draft proposal of the so-called Volcker rule dilutes the provision's original ban on proprietary trading. By giving banks wide latitude to "hedge" positions, the new proposal takes much of the bite out of the original rule, which banks have lobbied against heavily.

Citigroup mailed out an estimated 346 million credit card offers in the third quarter, more than one for every man, woman and child in the U.S. The push is expected to make Citi the largest mailer of credit card offers in the country, and shows how the bank is trying to regain ground lost to rivals during the 2008 financial crisis.

Wall Street is taking a bruising. The biggest investment banks are seeing sharply lower revenue, which could result in job cuts and lower bonuses, further undermining a fragile economy. How bad is it? Goldman Sachs Group is at risk of posting only its second quarterly loss in its dozen years as a public company.

Securities regulators have sent subpoenas to hedge funds, specialized trading shops and other firms as they probe possible insider trading that may have taken place before the U.S. government's long-term credit rating was cut last month, people familiar with the matter said.

The SEC charged a Goldman Sachs employee with tipping off his father about market-moving trades the Wall Street firm was about to make, allowing the two to earn $57,000 in illicit profits. It was the first insider-trading case related to the $1 trillion market in exchange-traded funds, and comes as regulators are reviewing their controls on the increasingly popular funds.

By the Numbers

52

Number of countries with satellites currently in orbit, double what it was 20 years ago. NASA on Friday warned there was still a small chance that remnants of a plummeting research satellite could end up in parts of the U.S. Space junk is a big problem, though the risks posed by orbiting debris to satellites and astronauts are greater than to us on the ground here.

—Justin Lahart

Sources: OECD, AP