DISCLAIMER

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.

Sunday, June 27, 2010

Gannett, largest US newspaper publisher, earns after cutting costs

Cost cutting produced a solidly profitable third quarter for Gannett Co.

But the latest financial results for the country's largest newspaper publisher show another big decline in ad revenue.

Gannett owns USA Today, more than 80 other newspapers and 23 television stations.

Its earnings Monday follow a similar report last week from McClatchy Co., another big newspaper owner that has managed to profit even as timberland boots its main revenue source withers.

Gannett's ad sales in its publishing division dropped 28 timberland mens boots percent from a year ago. That follows a 32 percent decline in the second quarter and a 34 percent timberland boots decline in the first.

Layoffs and other belt-tightening moves helped the McLean, timberland boots Virginia-based company earn $73.8 million, or 31 cents per share.

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Comcast Claims Interactive Ad Success

TV ads that let viewers set reminders to watch or record upcoming shows are already paying off, according to one Comcast Corp. executive.

In one instance of an interactive TV ad campaign tested in San Francisco, Comcast Spotlight director of product management Kathleen DeBenedictis credits such "reminder" ads for bringing in more viewers in key demographics. "It's all about driving viewership to those programs," DeBenedictis told the audience here yesterday.

The campaign included interactive reminder spots run by Lifetime Television and CBS on Comcast's San Francisco system, where it says it has 1.2 million interactive TV-enabled homes. Two days prior to the premiere of Lifetime’s Project Runway series -- which targets women 18 to 49 -- the network ran "remind record" spots. The campaign resulted in a 74 percent higher viewership for the 18-to-49 demo in San Francisco compared to other top 20 markets, DeBenedictis said.

DeBenedictis said Comcast Spotlight has run about 200 paid interactive TV ad campaigns, including 15-second and 30-second tune-in campaigns from programmers. It is also running spots from advertisers that allow subscribers to request more information about a product.

Comcast also surveyed subscribers to get feedback on interactive ad campaigns. Some of the results: 98 percent of subscribers surveyed said the interactive ads are easy to use; 95 percent thought the interactive ads were appropriate; and 97 percent said they’d use interactive TV ads again in the future, DeBenedictis said.

“We’re definitely seeing that viewers are responding positively to these applications, and they perceive them as valuable.”

Refreshing 'tired' stories
In addition to interactive advertising, Comcast is stepping up its focus on interactive TV programming. The MSO plans to deploy an EBIF-based ITV application for CNN, which will afford digital cable subscribers access to news stories supplied by CNN.com, Turner Broadcasting vice president of business development Michael Quigley said Thursday.

The application, which Turner has been developing for about two years, will prompt subscribers to press the select buttons on their remote controls to access text-based stories and photos supplied by CNN.com, Quigley said.

The ITV application will also allow viewers to access VoD content from CNN from its linear TV channel. The app is designed to keep viewers tuned to the channel longer, according to Quigley.

“One of the things we have a need to address at CNN is when the viewer tunes to the network, and says, ‘I’m tired of the story.’ In that situation, without some kind of interaction, he could ultimately [change channels],” Quigley said.

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Eaton to supply CH-53K helicopter cockpit control panels, dimming controllers


Engineers at Sikorsky Aircraft Corp., a United Technologies company in Irvine, Calif., needed lighted control panels and dimming controllers for its CH-53K military heavy-lift helicopter under development for the U.S. Marine Corps.

They found what they needed at Eaton Corp., a Cleveland-based designer and manufacturer of electrical systems and components for aircraft, industrial, and mobile equipment.

Eaton Corp. won a contract from Sikorsky to design, develop, and supply the helicopter control panels and controllers. Eaton also holds a contract for the helicopter’s hydraulic power generation system, integrated fuel system, and fluid conveyance package.

According to the contract, Eaton personnel will provide the lighted control-panel support hardware for five helicopter ship sets, as well as system development test sets, during the development phase of the program. The development phase runs through 2014.

Sikorsky staff anticipates the production of more than 156 helicopters for the U.S. Marine Corps. Sikorsky holds a contract valued at approximately $20 million and, when combined with anticipated foreign military sales, is expected to exceed $26 million over the approximate 12-year life of the program.

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GlaxoSmithKline Settles 200 Birth Defects Cases Linked to Antidepressant

Pharmaceutical giant GlaxoSmithKline has entered into confidential settlements with nearly 200 families who claimed that its antidepressant Paxil caused congenital birth defects.

Most of the claims alleged that babies born to mothers taking Paxil suffered heart defects. Last October, a suit filed on behalf of Lyam Kilker said he was born with three cardiac defects, including a hole between two chambers of his heart that disrupted the aorta.

Kilker’s case is the only one to have gone to trial, and a Philadelphia jury awarded Kilker’s family $2.5 million in compensatory damages. Plaintiffs argued that animal testing revealed potential problems with Paxil, but the company did not follow up with additional tests. A company memo introduced as evidence during the trial also revealed that Glaxo considered covering up any negative test results. “If neg, results can bury,” the 1997 memo said.

In 2005, the Food and Drug Administration warned doctors about a 35,000-person study that found that pregnant women on Paxil were twice as likely to have a child with defects than women taking other antidepressants.

The terms of the settlement will remain confidential. At least 600 Paxil birth defect cases have been filed, and up to 100 cases were settled prior to the settlement announced on Thursday. Paxil generates nearly $3 billion in annual sales, ConsumerAffairs.com reports.

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Wabco raises yearly outlook as car sales rise

Commercial auto parts maker Wabco Holdings Inc. on Friday raised its guidance due to better-than-expected demand worldwide.

The availability of credit has loosened, meaning businesses can buy cars and trucks more easily.

May marked the seventh straight month of year-over-year sales increases for the auto industry and demand for the electronic and mechanical products that Wabco makes is up.

The company now expects earnings in 2010 to be $1.75 to $2.05 per share, from earlier guidance of $1.40 to $1.80 per share. That excludes a fine levied on Wabco by the European Commission.

Analysts polled by Thomson Reuters, on average, predict a profit of $1.77 per share. Analyst estimates typically exclude one-time items.

Wabco has its headquarters in Brussels, Belgium. Company shares were unchanged at $33.63 Friday.

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5 Steps to Build Your Brand and Reputation

Whether you're trying to build your personal brand, business brand or a product brand, the basic steps to developing a successful brand are always the same. Brands aren't built overnight. Be prepared to commit to the long-term and don't give up.

Building a brand is just like building a reputation in that you need to prove yourself again and again in order for people to put their trust in you and become loyal to you. This holds true for individuals, small companies and even the largest, most trusted brands, such as Kraft Foods and Disney.

With that in mind, check out the 5 steps to building your brand below:

1. Be specific

Know what your brand stands for, and know what your brand promises. Your brand promise should be precise and attainable, and you should be able to communicate it clearly. For example, don’t just say your brand stands for quality. That’s a broad statement that any individual or company can make. How does your brand specifically live and breathe quality? Those specifics are what will make your brand stand out from your competition.

2. Be authoritative

Once you know what your brand stands for and promises, don’t be afraid to flaunt it. You need to make everyone else believe you’re the leader and authority in your area of expertise and specialization. Don’t meekly communicate your message. Say it with powerful words and conviction.

3. Be consistent

Get your brand message out there and don’t waiver on it. I’ve read statistics in the past that state as soon as you’re tired of your message, your customers are just starting to recognize it. Commit to your brand message. A consistent message and customer experience are critical elements to building your brand.

4. Be honest

In today’s world, people welcome honesty and transparency, and your business will be rewarded for it. Don’t offer something you can’t deliver. Instead, admit your fallibility and deliver on your promises. Integrity goes a long way.

5. Be relentless

Get your brand message out there. Then get it out again and again and again. People are inundated with a myriad of messages each day. It’s not only critical that you try to stand out from the competition but it’s equally important that you are not forgotten. Don’t drop the ball on communicating your brand promise and building your brand image. Your efforts will be rewarded in time.

These rules apply to company, product and personal branding. They are simple, basic rules that are critical to your brand’s overall success.

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Unusual Trading Activity for Kraft Foods Inc.

Unusual volume of call contracts was traded today. There were 68,619 call contracts traded compared to the ten day average volume of 5,414 contracts. On the put side, 2,164 put contracts exchanged hands. Today's traded Put/Call ratio is 0.03. There were 31.71 calls traded for each put contract.

The following alerts were raised:

- Unusual Call Volume
- Low Put/Call Ratio

Put/Call ratio is often used to measure investment sentiment, the ratio serves as a predictor of investor behavior. Unusual options volume provides reliable clues that the stock is expected to make a move.


Kraft Foods Inc. closed at $29.47 in the last trading session and opened today at $29.57. The stock price declined $0.14 (-0.47%) to $29.33 in today's trading session. KFT is trading between the range of $29.28 - $29.60. Volume is 15,855,927 in relation to the three month average volume of 12,806,300 shares. KFT is trading below the 50 day moving average and higher than the 200 day moving average. The stock's 52 week low is $25.08 and 52 week high is $31.09.

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Wednesday, June 2, 2010

Oil nears Florida as BP tries risky cap move

As submersible robots made another risky attempt to control the underwater Gulf oil gusher, the crude on the surface spread, closing in on Florida. BP's stock plummeted and took much of the market down with it, and the federal government announced criminal and civil investigations into the spill.

The stakes couldn't be higher.

After six weeks of failures to block the well or divert the oil, the latest mission involved using a set of tools akin to an oversized deli slicer and garden shears to break away the broken riser pipe so engineers can then position a cap over the well's opening.

But it's a big gamble: Even if it succeeds, it will temporarily increase the flow of an already massive leak by 20 percent -- at least 100,000 gallons more a day. That's on top of the estimated 500,000 to 1 million gallons gushing out already.

In Florida, officials confirmed an oil sheen about nine miles from the famous white sands of Pensacola beach. Crews shored up miles of boom and prepared for the mess to make landfall as early as Wednesday.

Florida would be the fourth state hit. Crude has already been reported along barrier islands in Alabama and Mississippi, and it has impacted some 125 miles (201 kilometers) of Louisiana coastline.

More federal fishing waters were closed, too, another setback for one of the region's most important industries. More than one-third of federal waters were off-limits for fishing, along with hundreds of square miles of state waters.

BP's stock nose-dived on Tuesday, losing nearly 15 percent of its value on the first trading day since the previous best option -- the so-called top kill -- failed and was aborted at the government's direction. It dipped steeply with Holder's late-afternoon announcement, which also sent other energy stocks tumbling, ultimately causing the Dow Jones industrial average to tumble 112.

If BP's new effort to contain the leak fails, the procedure will have made the biggest oil spill in U.S. history even worse.

It is an engineer's nightmare. They're trying to fit a 21-inch cap over a 20-inch pipe a mile away. That's just horrendously hard to do. It's not like you and I standing on the ground pushing -- they're using little robots to do this.

Since the Deepwater Horizon rig exploded on April 20, eventually collapsing into the Gulf of Mexico, an estimated 20 million to 40 million gallons (76 million to 151 million liters) of oil has spewed, eclipsing the 11 million that leaked from the Exxon Valdez disaster.

BP PLC's Doug Suttles said that although there's no guarantee the company's latest cut-and-cap effort to close off the leak will work, he remained hopeful, but wouldn't guarantee success.

Engineers have put underwater robots and equipment in place this week after a bold attempt to plug the well by force-feeding it heavy mud and cement -- called a "top kill" -- was aborted over the weekend. Crews pumped thousands of gallons of the mud into the well but were unable to overcome the pressure of the oil.

The company said if the small dome is successful it could capture and siphon a majority of the gushing oil to the surface. But the cut and cap will not halt the oil flow, just capture some of it and funnel it to vessels waiting at the surface.

The British oil giant has tried and failed repeatedly to halt the flow of the oil, and this attempt like others has never been tried before a mile beneath the ocean. Experts warned it could be even riskier than the others because slicing open the 20-inch (51-centimeter) riser could unleash more oil if there was a kink in the pipe that restricted some of the flow.

But BP's best chance to actually plug the leak rests with a pair of relief wells but those won't likely be completed until August.

The company has carefully prepared the next phase, knowing that another failure could mean millions more gallons spew into the ocean and lead to even more public pressure. And they say they have learned valuable lessons from the failure of a bigger version of the containment cap last month that was clogged with icelike slush.

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Tuesday, June 1, 2010

Wall Street Slides as Energy Shares Hit

Stocks fell on Tuesday as energy shares slid after the latest failed attempt to halt the oil spill in the Gulf of Mexico and the U.S. government announced a criminal probe into the disaster.

Investors punished shares of companies directly involved with the spill and losses accelerated into the close following the news of the investigation.

"It's the fact that no one can really quantify the cost of the BP disaster out there," said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.

"There's so much uncertainty, investors are stepping to the sidelines."

U.S.-listed shares of BP Plc , which owns the well, tumbled 15 percent. The losses signaled growing frustration over the difficulty of sealing off the worst oil spill in U.S. history.

The Dow Jones industrial average <.DJI> dropped 112.61 points, or 1.11 percent, to 10,024.02. The Standard & Poor's 500 Index <.SPX> fell 18.70 points, or 1.72 percent, to 1,070.71. The Nasdaq Composite Index <.IXIC> gave up 34.71 points, or 1.54 percent, at 2,222.33.

Decliners carried the day on the New York Stock Exchange, outpacing advancers by almost 4 to 1.

BP's American Depositary Receipts have now lost about $75.03 billion since the April 20 rig explosion, and the stock has the lowest price-to-earnings ratio of any of the major oil companies as a result of the fall.

Halliburton Co, which performed some work on the well, lost 14.8 percent after Goldman Sachs removed the company from its "conviction buy list.

Transocean , which owns the rig, slid 11.9 percent to $50.04, while the S&P energy index <.GSPE> shed 4.3 percent.

Markets were choppy throughout the day and had earlier found support from data that showed manufacturing expanded for a tenth straight month in May.

In addition to the stronger-than-expected manufacturing data, construction spending recorded its largest gain in nearly 10 years in April, government data showed.

Despite the positive U.S. data, investors worry about what impact the euro zone's debt crisis will have on global economic growth. Indeed, data showed a more sluggish pace in euro zone manufacturing, while the rate of China's factory output eased.

On the upside, Apple Inc rose 1.5 percent to $260.83 as a successful international launch of its iPad prompted analysts to raise earnings and sales estimates.

In merger news, ev3 Inc jumped 17.4 percent to $22.22 after Covidien Plc agreed to buy the maker of stents and other vascular devices for $2.6 billion. Covidien shares slipped 2.7 percent to $41.24.

Regarding the oil spill investigation, the FBI and other federal agencies, will participate.

"If we find evidence of illegal behavior, we will be forceful in our response," U.S. Attorney General Eric Holder said in New Orleans.

About 9.39 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, shy of last year's estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by 2,403 to 642, while on the Nasdaq, decliners beat advancers 2,224 to 455.

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Weak Euro Propels German Economy


Germany's economy appears to be gaining steam despite mounting worries the fiscal troubles in countries along the euro-zone's fringe could undermine Europe's recovery.

Germany's economy, the driver of the European economy, is likely to expand at a 3% to 4% rate this quarter, economists say, a forecast supported by a string of strong reports on employment, consumer spending and manufacturing Tuesday. Lower interest rates and a weaker euro have propelled Germany's investment and export-driven economy.

The recovery could still falter, analysts warn. Just as the U.S. subprime-mortgage crisis thwarted Germany's expansion two years ago, Europe's brewing financial contagion could hamper growth if German banks face extensive losses and are unable to extend credit to industry and households. Other countries in Europe face years of weak growth or recession, making Germany vulnerable to any slowdown in markets including China or the U.S.

Still, while the German public was strongly opposed to rescuing Greece, and its central bank is openly at odds with the European Central Bank's decision to purchase Greek and other struggling countries' debt, from an economic standpoint it has little to complain about.

"As a firm, we're always one of the very first to experience the first affects of a crisis," says Dietmar Ahl, chief executive of Günther Bechtold GmbH, a Bavaria-based sheet metal processor and manufacturer. "That also has the benefit of making us one of the first to see a recovery. And that's what's happening right now."

Business should be up 25% this year, Mr. Ahl says, after falling almost 50% between 2007 and 2009. The company has been able to add some temporary workers to its 66-person staff.

German unemployment fell 45,000 in May, more than twice the drop expected by economists, bringing the unemployment rate down to 7.7%, the lowest since December 2008. The EU-harmonized figure is even lower at just over 7%.

The German numbers highlight the divide between its economy and that of the greater euro zone. The European Union's Eurostat agency said Tuesday that unemployment across the 16 countries that share the euro rose to 10.1% in April, its highest level in 12 years, driven by increases in Spain, Portugal, Ireland and Italy. But Eurostat said there are signs the jobless rate may be close to peaking after only 25,000 people joined jobless queues in April, the second-smallest increase since March 2008.

German manufacturing slowed in May, according to purchasing manager reports released Tuesday by Markit, but continues to expand at a healthy pace. Factory output slowed more markedly in the euro zone as a whole, highlighting the region's fragility.

"The short-term outlook is very favorable" for Germany, said Alexander Koch, economist at UniCredit Group. He thinks Germany's GDP could swell 4%, at an annualized rate, this quarter. "The momentum is strong, which bodes well for the labor market in coming months," Mr. Koch says.

JPMorgan Chase expects Germany's GDP to expand 3% this quarter, though that could be revised higher in light of recent data, economist Greg Fuzesi says. That should propel euro zone growth to around 3% this quarter as well, Mr. Fuzesi says. GDP in the currency bloc advanced just 0.8%, at an annualized rate, last quarter, well below growth rates seen in the US and developing countries such as China and India.

The total number of German unemployed fell last month to 3.24 million. It was once feared that unemployment would top four million or even five million. The labor market is one area where Germany has outperformed the U.S., where the jobless rate is 9.9% despite strong economic growth at the end of 2009 and early 2010.

A number of forces are at work here, economists say. The Germany statistics office changed the way it classifies unemployed people who are using employment agencies, which reduced the reported numbers of unemployed. Government subsidy programs aimed at keeping people in their jobs by paying part of their wages and employment taxes kept as many as 500,000 from going on the jobless rolls, some economists estimate.

The number of people on Germany's subsidized work program, known as Kurzarbeit, has fallen roughly in half since it peaked at 1.5 million one year ago.

That suggests a gamble Germany made at the start of the crisis is paying off. Kurzarbeit has been in place for decades, but the government expanded the program during the recent recession. Critics warned that by keeping people in their jobs, the government was simply delaying an inevitable adjustment that would have to come in order for Germany to stay competitive with other economic powerhouses including the U.S. and China.

But now that global trade is recovering, German exporters have the staff, and expertise, on hand to meet demand.

"Right now, the Germany industry is starting to heal itself very slowly," says Matthias Freund, who owns Freund Human Resources Consulting, which focuses on management recruitment. "Firms are starting to hire employees again, and you can sense that the business climate is getting better."

Europe's debt crisis could still derail expansion, because German banks are heavily exposed to the debt of at-risk peripheral countries like Greece, Portugal and Ireland. But for now a weaker euro is shielding the economy from financial turbulence. The euro now fetches around $1.23 against the U.S. dollar, down more than 15% since December.

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Top 5 Companies in the Independent Power Producers Industry With the Best Relative Performance (DYN, HNP, MIR, NRG, CEG)

Below are the top five companies in the Independent Power Producers industry as measured by relative performance. This analysis was compiled based on yesterday's trading activity as we search for stocks that have the potential to outperform.

Dynegy (NYSE:DYN) ranks first with a gain of 2.35%;

Huaneng Power International (NYSE:HNP) ranks second with a gain of 1.62%;

and Mirant (NYSE:MIR) ranks third with a gain of 1.55%.

NRG Energy (NYSE:NRG) follows with a gain of 1.43%

and Constellation Energy (NYSE:CEG) rounds out the top five with a gain of 1.17%.

SmarTrend is bullish on shares of DYN and our subscribers were alerted to Buy on May 25, 2010 at $4.76. The stock has risen 9.9% since the alert was issued.

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GSK settles more lawsuits over Avandia

Thousands of lawsuits alleging that drug maker GlaxoSmithKline’s diabetes drug Avandia caused heart attacks were settled, the company confirmed today.

The cases were originally scheduled to go to court in Philadelphia this month. GlaxoSmithKline declined to provide details of the settlement.

Why is consumer economy is dead even 1 year after the financial crisis

One year after the near collapse of the global financial system, this much is clear: The financial world as we knew it is over, and something new is rising from its ashes.

Historians will look to September 2008 as a watershed for the U.S. economy.

On Sept. 7, the government seized mortgage titans Fannie Mae and Freddie Mac. Eight days later, investment bank Lehman Brothers filed for bankruptcy, sparking a global financial panic that threatened to topple blue-chip financial institutions around the world. In the several months that followed, governments from Washington to Beijing responded with unprecedented intervention into financial markets and across their economies, seeking to stop the wreckage and stem the damage.

One year later, the easy-money system that financed the boom era from the 1980s until a year ago is smashed. Once-ravenous U.S. consumers are saving money and paying down debt. Banks are building reserves and hoarding cash. And governments are fashioning a new global financial order.

Congress and the Obama administration have lost faith in self-regulated markets. Together, they're writing the most sweeping new regulations over finance since the Great Depression. And in this ever-more-connected global economy, Washington is working with its partners through the G-20 group of nations to develop worldwide rules to govern finance.

"Our objective is to design an economic framework where we're going to have a more balanced pattern of growth globally, less reliant on a buildup of unsustainable borrowing . . . and not just here, but around the world," said Treasury Secretary Timothy Geithner.

The first faint signs that the U.S. economy may be clawing its way back from the worst recession since the Great Depression are only now starting to appear, a year after the panic began. Similar indications are sprouting in Europe, China and Japan.

Still, economists concur that a quarter-century of economic growth fueled by cheap credit is over. Many analysts also think that an extended period of slow job growth and suppressed wage growth will keep consumers — and the businesses that sell to them — in the dumps for years.

"Those things are likely to be subpar for a long period of time," said Martin Regalia, the chief economist for the U.S. Chamber of Commerce. "I think it means that we probably see potential rates of growth that are in the 2-2.5 (percent) range, or maybe . . . 1.8-1.9 (percent)." A growth rate of 3 percent to 3.5 percent is considered average.

The unemployment rate rose to 9.7 percent in August and is expected to peak above 10 percent in the months ahead. It's already there in at least 15 states. Regalia thinks that it could be five years before the U.S. economy generates enough jobs to overcome those lost and to employ the new workers entering the labor force.

All this is likely to keep consumers on the sidelines.

"I think this financial panic and Great Recession is an inflection point for the financial system and the economy," said Mark Zandi, the chief economist for forecaster Moody's Economy.com. "It means much less risk-taking, at least for a number of years to come — a decade or two. That will be evident in less credit and more costly credit. If you are a household or a business, it will cost you more, and it will be more difficult to get that credit."

The numbers bear him out. The Fed's most recent release of credit data showed that consumer credit decreased at an annual rate of 5.2 percent from April to June, after falling by a 3.6 percent annual rate from January to March. Revolving lines of credit, which include credit cards, fell by an annualized 8.9 percent in the first quarter, followed by an 8.2 percent drop in the second quarter.

That's a sea change. For much of the past two decades, strong U.S. growth has come largely through expanding credit. The global economy fed off this trend.

China became a manufacturing hub by selling attractively priced exports to U.S. consumers who were living beyond their means. China's Asian neighbors sent it components for final assembly; Africa and Latin America sold China their raw materials. All fed off U.S. consumers' bottomless appetite for more, bought on credit.

"That's over. Consumers can do their part — spend at a rate consistent with their income growth, but not much beyond that," Zandi said.

If U.S. consumers no longer drive the global economy, then consumers in big emerging economies such as China and Brazil will have to take up some of the slack. Trade among nations will take on greater importance.

In the emerging "new normal," U.S. companies will have to be more competitive. They must sell into big developing markets; yet as the recent Cash for Clunkers effort underscored, the competitive hurdles are high: Foreign-owned automakers, led by Toyota, reaped the most benefit from the U.S. tax breaks for new car purchases, not GM and Chrysler.

Need a loan? Tough luck: Many U.S. banks are in no condition to lend. Around 416 banks are now on a "problem list" and at risk of insolvency. Regulators already have shuttered 81 banks and thrifts this year.

The Federal Deposit Insurance Corp. reported on Aug. 27 that rising loan losses are depleting bank capital. The ratio of bank reserves to bad loans was 63.5 percent from April to June, the lowest it's been since the savings-and-loan crisis in 1991.

For all that, the U.S. economy does seem to be rising off its sickbed. The latest manufacturing data for August point to a return to growth, and home sales are rising. Indeed, there are many encouraging signs emerging in the global economy.

It's all growth from a low starting point, however, and many economists think that there'll be a lower baseline for U.S. and global growth if the new financial order means less risk-taking by lenders and less indebtedness by companies and consumers.

That seems evident now in the U.S. personal savings rate. It fell steadily from 9.59 percent in the 1970s to 2.68 percent in the easy-money era from 2000 to 2008; from 2005 to 2007, it averaged 1.83 percent.

Today, that trend is in reverse. From April to June, Americans' personal savings rate was 5 percent, and it could go higher if the unemployment rate keeps rising. Almost 15 million Americans are unemployed — and countless others are underemployed or uncertain about their job security, so they're spending less and saving more.

A few years ago, banks fell all over themselves to offer cheap home equity loans and lines of consumer credit. No more. Even billions in government bailout dollars to spur lending haven't changed that.

"The strategy that was stated at the beginning of the year — which is that you would sustain the banking system in order that it would resume lending — hasn't worked, and it isn't going to work," said James K. Galbraith, an economist at the University of Texas at Austin.

Over the course of 2008, the nation's five largest banks reduced their consumer loans by 79 percent, real estate loans by 66 percent and commercial loans by 19 percent, according to FDIC data. A wide range of credit measures, including recent FDIC data, show that lending remains depressed.

Why? The foundation of U.S. credit expansion for the past 20 years is in ruin. Since the 1980s, banks haven't kept loans on their balance sheets; instead, they sold them into a secondary market, where they were pooled for sale to investors as securities. The process, called securitization, fueled a rapid expansion of credit to consumers and businesses. By passing their loans on to investors, banks were freed to lend more.

Today, securitization is all but dead. Investors have little appetite for risky securities. Few buyers want a security based on pools of mortgages, car loans, student loans and the like.

"The basis of revival of the system along the line of what previously existed doesn't exist. The foundation that was supposed to be there for the revival (of the economy) . . . got washed away," Galbraith said.

Unless and until securitization rebounds, it will be hard for banks to resume robust lending because they're stuck with loans on their books.

"We've just been scared," said Robert C. Pozen, the chairman of Boston-based MFS Investment Management. He thinks that the freeze in securitization reflects a lack of trust in Wall Street and its products and remains a huge obstacle to the resumption of lending that's vital to an economic recovery.

Enter the Federal Reserve. It now props up the secondary market for pooled loans that are vital to the functioning of the U.S. financial system. The Fed is lending money to investors who're willing to buy the safest pools of loans, called asset-backed securities.

Through Sept. 3, the Fed had funded purchases of $817.6 billion in mortgage-backed securities. These securities were pooled mostly by mortgage finance giants Fannie Mae, Freddie Mac and Ginnie Mae. In recent months, the Fed also has moved aggressively to lend for purchase of pools of other consumer-based loans.

Today, there's little private-sector demand for new loan-based securities; government is virtually the only game in town. That's why on Aug. 17, the Fed announced that it would extend its program to finance the purchase of pools of loans until mid-2010. That suggests there's still a long way to go before a functioning securitization market — the backbone of consumer lending — returns to a semblance of normalcy.

Americans are getting poorer, and it's going to get worse

The early impact of the worst recession since the 1930s pushed median incomes down, forced millions more people into poverty and left more Americans without health care in 2008, according to new annual survey data from the U.S. Census Bureau.

Poor people, working people, blacks, Hispanics and children bore a disproportionate share of the hardship. The new figures, however, likely understate the severity of the economic downturn because a large portion of nation's job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey.

The poor performances of key economic and social indicators come as little surprise, since the recession officially began in December 2007 and continued to create economic carnage for 18 months before appearing to bottom out over the summer.

_ Along the way, the nation's real median income — the point at which half the nation earns less and half more — fell 3.6 percent from $52,163 in 2007 to $50,303 in 2008. That was the first such decline in three years and the worst in the first year of any recession since Census Bureau began collecting the data during World War II, said Lawrence F. Katz, an economics professor at Harvard University.

_ Men and women were both affected. Full-time working men saw their median incomes fall by 1 percent from $46,846 to $46,367, while female earnings declined by 1.9 percent, from $36,451 to $35,745.

_ The worst is yet to come. "This is just the beginning, or the tip of the iceberg because 2008 was not nearly as bad an economy as 2009," Katz said. The average unemployment rate in 2008 was 5.8 percent, up from 4.6 percent in 2007. That pales in comparison with the 9 percent average unemployment rate so far this year, and it's likely to increase. August unemployment was 9.7 percent, and it's expected to peak above 10 percent in the months to come.

_ Because real median household income is 4.2 percent lower than it was in 2000, Katz said, "We've basically seen a lost decade for the American family," with only the top earning families doing better now than they were in 2000.

The national poverty rate also hit its highest level since 1997, jumping to 13.2 percent in 2008 from 12.5 percent in 2007. The increase meant that 39.8 million people lived below the poverty line, the most since 1960. That's up from 37.3 million in 2007. For children, the poverty rate hit 19 percent, or 14.1 million youngsters in 2008. That means 35.3 percent of the nation's poor in 2008 were under age 18.

Heidi Shierholz, an economist with the liberal-leaning Economic Policy Institute, estimated that 25 percent of U.S. children would be in poverty next year and 26.6 percent in 2010. "This would represent an increase of 10.4 percentage points from 2000 to 2010 — truly a lost decade," Shierholz said.

Meanwhile, the number of people without health insurance increased from 45.7 million in 2007 to 46.3 million in 2008, even though the percentage of uninsured Americans didn't change, at 15.4 percent. About 46 percent of the nation's uninsured are non-Hispanic whites, but as a group, 11 percent of non-Hispanic whites lack coverage, compared with 19 percent of blacks and 31 percent of Hispanics. About 45 percent of noncitizens lack coverage.

Following President Barack Obama's Wednesday night speech to Congress in which he stressed the need for comprehensive health care legislation, many supporters used the new Census estimates to support Obama's call for change.

At the Yorkville Common Pantry, an emergency meal program in East Harlem, Joel Berg, the executive director of the New York City Coalition Against Hunger, said the troubling numbers underscore the need for health reform.

"Today's new numbers make it clearer than ever that lack of health insurance and inability to pay medical bills is one of the greatest contributing factors to poverty and hunger in America," Berg said. "People in poor health rarely earn significant wealth."

Henry E. Simmons, President of the National Coalition on Health Care, another group pushing for reform, said the Census data also shows that more than 600,000 adults who earn more than $75,000 a year also lost coverage in 2008.

"The problem of (the uninsured) is not confined to the less affluent. More middle-income Americans are losing their health insurance coverage," Simmons said.

As in previous economic downturns, public health coverage through government-run programs such as Medicaid, Medicare, and the State Children's Health Insurance Program helped cover many people otherwise would've gone without. Enrollment in Medicaid and SCHIP alone increased by 3 million in 2008.

This expanded coverage caused the number of uninsured children to fall from 8.1 million or 11 percent in 2007 to 7.3 million of 9.9 percent in 2008.

"This was the lowest number (and percentage) of children without health insurance since 1987," said David Johnson, who heads the Census Bureau's housing and household economics statistics division.

Many experts think the 2008 data substantially understates how many people lack health coverage today because the unemployment rate in 2008 ranged from 4.8 to 7.2 percent compared with 9.7 percent in August.

Ron Pollack, the executive director of the health care advocacy group, Families USA, said every percentage point increase in the unemployment rate adds about 1.1 million people to the uninsured rolls. He estimates that 50 million Americans now lack coverage.

Bernanke: Recession is over, but tough times will linger

The deep recession that's gripped the U.S. economy by the throat since December 2007 is "very likely over at this point," Federal Reserve Chairman Ben Bernanke said Tuesday.

However, Bernanke painted a picture of an underperforming economy well into next year as he fielded questions after a speech at the Brookings Institution, a center-left research center in the nation's capital.

"From a technical perspective the recession is very likely over," Bernanke said, cautioning that unemployment is likely to remain high. "It's still going to feel like a very weak economy for some time, as many people will still find that their job security and employment status is not what they wish it was. So that's a challenge for us and all policymakers going forward."

Most mainstream economists think that the National Bureau of Economic Research, the official scorekeeper of when recessions begin and end, eventually will declare that this downturn came to an end in the summer or early fall of 2009.

What follows may not feel much like recovery, Bernanke cautioned, because structural problems in the U.S. economy are likely to resurface. There'll be economic growth during the rest of this year, "but the general view of most forecasters is the pace of growth in 2010 will be moderate, less than you might expect, given the depth of the recession, because of ongoing head winds."

The "head winds" he referred to include an impaired credit system, households still trying to dig out from personal debt and ongoing adjustments in many sectors of the economy, such as construction and autos.

In addition, the government must unwind many of its massive stimulus efforts or risk igniting inflation. That's all likely to lead to a weaker recovery than after past recessions, and a lingering high unemployment rate.

The sluggish outlook was punctuated by August retail sales data released Tuesday by the Commerce Department. Sales rose by 2.7 percent over July, driven up by the government's "cash for clunkers" car sales program and higher gasoline prices.

Drop those two factors, and retail sales rose by only 0.6 percent. That's another sign of consumer reluctance to spend amid widespread job insecurity.

"The various fiscal stimulus measures, including the cash for clunkers program, are playing a pivotal role in jump-starting the economy in the third quarter of 2009, and that should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery beyond the current quarter," Brian Bethune, a U.S. economist for forecaster IHS Global Insight, warned in a research note Tuesday.

Looking over a longer horizon, Bernanke said that a major factor in the recent global expansion of credit was significantly impaired and unlikely to revive anytime soon. The implication: less lending and at higher costs.

The Fed chief was referring to securitization, the process by which loans are sold to Wall Street firms that bundle them together into securities that are sold to investors. Their returns on investment come from monthly payments that consumers make on their homes, cars, credit cards and student loans.

Securitization is in a deep freeze right now because investors no longer want pooled loans, fearing defaults by consumers and businesses. This is one reason it's so difficult now for consumers to get credit to buy cars or houses. Bernanke warned that even when this process resumes, it's unlikely to be as vigorous as it was during the go-go days earlier this decade.

"My forecast would be that the shadow banking system — securitization markets — will come back, will be a substantial part of the U.S. credit system. But they will certainly, at least in the medium term, be simpler, smaller, less opaque, subject to more oversight by regulators," Bernanke said. "And those things, I think, will constrain its growth for a period of time."

Family health costs outpace inflation and wage growth

The average cost of job-based family health insurance climbed 5 percent to $13,375 in 2009, making this the 10th straight year that health care premiums have increased faster than workers' wages and overall inflation have.

Insurance costs have increased 131 percent since 1999, when a year of family coverage cost about $5,791, according to the 2009 Employer Health Benefits Survey by the Kaiser Family Foundation and the Health Research & Educational Trust.

That supercharged growth rate far outpaces the 38 percent increase in wages and 28 percent growth of inflation over the same period.

The inability of consumers and employers to finance that growth in cost is helping to drive the heated debate over how to revamp the nation's heath care system.

At a time when employers are laying off workers, facing revenue declines and looking for ways to cut costs, health insurance is proving a substantial financial burden.

So they're passing the costs to employees, who're paying higher deductibles and out-of-pocket expenses while often receiving less comprehensive coverage for their money.

Twenty-one percent of firms with insurance coverage reduced benefits or increased employee cost-sharing due to the recession, the survey found. Fifteen percent increased their workers' shares of the monthly premium.

"When health care costs continue to rise so much faster than overall inflation in a bad recession, workers and employers really feel the pain," said Drew Altman, the president and chief executive of the Kaiser Family Foundation.

Employers typically pay about $9,860 of the standard $13,375 family policy, the survey found. Workers pick up the rest, about $3,515 or 27 percent. That's the same share as last year.

The cost of single coverage increased slightly this year, averaging about $4,824 compared to $4,704 last year. Employees pay about 17 percent of the cost, or $779 toward the coverage.

The rising costs mean that a year of family coverage, on average, now costs employers about $15,000, nearly as much as a year of labor from a full-time minimum wage worker, Altman said.

Consumers also pay more, on average, for family coverage than they'd pay to purchase a gas-sipping Chevrolet Aveo — about $12,000 — or to rent a two-bedroom apartment for the nationwide yearly average of $11,136.

"It just underscores why health insurance is increasingly unaffordable for working people and for employers, especially small employers," Altman said.

About 159 million people have employer-based coverage nationally, but the percentage of companies that provide it is declining, particularly among smaller ones. Only 59 percent of firms with fewer than 200 employees offer coverage in 2009, compared with 62 percent last year. The rate fell from 78 percent to 72 percent among companies with 10 to 24 employees.

Perry Goodwin, who runs the Gaines W. Harrison & Sons hydraulic repair shop in Columbia, S.C., saw his insurance costs increase 28 percent to 33 percent a year for five straight years. But when it cost him $16,000 a month to insure his 20 employees, Goodwin decided it was time for a change.

So he switched insurance carriers several years ago, and his premiums fell to about $10,000 a month. "But then they shot up another $3,000 (a month) over the period of one year," Goodwin said. "So then I went to another carrier, who got me down to about $11,000 a month."

Goodwin now pays about $10,000 a month, and to keep his costs down he increased his employees' deductible this year to $500 from $250 and cut his coverage for employee dependents in half.

"I could get it cheaper if I wanted it, but you get what you pay for," Goodwin said.

As the debate about health care goes on, Goodwin said he opposes what the Obama administration and Congress have proposed, particularly a government-run public option, which he fears businesses could be asked to subsidize.

"It ain't the government's business," Goodwin said. "They don't need to be running a car company, and they sure don't need to be running health care."

If there's a way to keep costs down without the government getting involved, however, Goodwin said he's all for it.

Dallas Salisbury, the president and chief executive of the Employee Benefits Research Institute, said Goodwin's comments are typical of surveys of business owners, who're mostly Republican or Libertarian and are likely to oppose most forms of government intervention.

Without state or local level regulation, however, Salisbury said insurance companies would withhold coverage from people with pre-existing conditions and try to "cherry pick," or insure only healthy people.

Resolving the cost, coverage and quality issues surrounding the health care debate will always be difficult as long as consumers want access to everything, "but they assume that everybody else is getting a lot of services that they really don't need. That has been, for at least 60 years, the dilemma of modern health care," Salisbury said.

Other key findings from the survey:

_ Twenty-two percent of workers now pay at least $1,000 out of their own pocket for single coverage before their insurance kicks in. That's up from 18 percent last year, according to the survey of more than 2,000 public and private employers.

_ The average annual deductible for single coverage in an HMO increased to $699 this year from $503 in 2008. For family coverage in an HMO, the average deductible jumped to $1,524 from $1,053.

Will Obama, Fed tolerate another jobless recovery?

Politicians, pundits and even the Federal Reserve chairman have declared the recession over, but what's coming next is likely to prove as vexing as the deep economic crisis that Americans hope to leave behind.

As the economy begins to grow again, the nation faces a huge challenge: Consumers drive roughly 70 percent of U.S. economic activity, but job growth is expected to be quite slow even as the recovery gains steam. Without a rebounding job market, consumer spending is unlikely to return to robust levels, slowing a return to full employment.

Think of it as America's chicken-and-egg dilemma: The economy needs a big jump in consumer spending to spur exceptional growth, but that won't happen as long as unemployment remains high.

Fed Chairman Ben Bernanke acknowledged this dilemma Tuesday when he predicted that growth next year would be moderate at best. The economy faces strong "head winds," he warned, raising prospects for a jobless recovery like the ones that followed the brief recessions in 1990-91 and 2001.

"Unless the economy grows significantly faster than its longer-term growth rate," which economists peg at about 3 percent annually, "it will be relatively slow in creating jobs over and above people coming into the labor force," Bernanke said. "And therefore the unemployment rate would tend to come down quite slowly. That's a risk, a possibility."

That's a problem for President Barack Obama, who's promised jobs, and for Bernanke, whose mission includes steering the economy to full employment. The unemployment rate, now 9.7 percent, is expected to rise above 10 percent soon.

They must find a way to encourage job creation to replace the more than 7 million positions already lost, plus about 1 million new entrants into the work force annually. To get back to an unemployment rate below 5 percent will require about 12 million to14 million new jobs.

"The problem here is that once the economy makes the turn, and once we're not only out of recession but out of this period that feels like recession ... even then the economy is not going to be growing fast enough consistently to bring down the unemployment rate," said Ken Goldstein, an economist with the Conference Board, a business research center in New York.

Absent significantly above-trend growth, Goldstein said, the unemployment rate is likely to remain stubbornly high, at around 8 percent by the end of 2011.

"It might be 2012 or 2013 before we're back below 6 (percent). We're certainly not going to go back to 4. We may not see 5 again. But to be in the 5.5 range, we could be there by mid-decade," he said.

That's 2015. If Goldstein is right, many Americans will continue struggling to find jobs or will be underemployed, and the economy is in for a long slog.

With credit markets still impaired and Americans likely to be offered less and more-costly credit for years, a period of higher-than-average growth appears unlikely. The U.S. economy probably isn't facing a return to the dismal 1970s, but it won't be like the roaring '80s and '90s either.

"It's going to feel uncomfortable compared to what we've enjoyed over the past couple of decades," said Mark Zandi, the chief economist for forecaster Moody's Economy.com.

Not all analysts are glum. James Glassman, senior economist and managing director at JP Morgan Chase, the nation's strongest large bank, thinks that the Federal Reserve and the Obama administration will do what it takes to improve the jobs outlook.

"We're going to have to grow faster than trend to get unemployment to come down, which means that it is going to happen — unless you believe zero (percent) interest rates don't matter," Glassman said in an interview at bank headquarters.

His logic goes like this: Because the Fed has held its benchmark interest rate near zero since last December and is expected to leave it there for quite a while longer, lending rates across the economy will remain unusually low as the Fed tries to engineer full employment, which economists consider to be when the jobless rate is around 5 percent.

"The economy is not going to have the same robustness that it normally has. Returning to 5 percent (unemployment) is a national goal. That means they are not going to take their foot off of the gas until they can see that coming into view," Glassman said.

"It doesn't take a brain surgeon to figure out that you should gun it to get the economy to full employment. And it's not a Republican idea or Democrat idea, because we've seen both the Bush and Obama administrations do it," he said.

However, banks aren't lending much right now despite the low rates as they recover from the recession and the toll it's taken on their balance sheets. Over time, however, economists think, bank lending will grow and low borrowing costs will stimulate economic activity by consumers and businesses, and one result will be job growth.

If unemployment remains intolerably high, the government could take further steps.

"I think policy measures can be used to generate a more robust recovery," said Lawrence Mishel, the president of the Economic Policy Institute, a liberal policy-research group. He favors extending unemployment benefits and more aid to states, effectively pumping up the existing $787 billion federal stimulus effort, since at least 15 states now have unemployment rates above 10 percent.

In a sign of the times, Mishel also sees a need for targeted public-works programs like those of the 1930s and temporary tax breaks for businesses that hire new workers, an idea that conservatives have championed.

"There are going to be distressed communities that are going to need jobs for years to come," Mishel said. "I think that these are really extraordinary times, and I think we need to do what we can to create jobs."

Obama doesn't think so at this point, however. In an interview this week with The New York Times, the president said he was leaning against seeking a second economic stimulus package. "I have a strong inclination not to do it," Obama said, citing expectations that the economy is poised to resume growth. "As you know, jobs tend to be a lagging indicator. They come last," he said.

Why haven't any Wall Street tycoons been sent to the slammer?

More than a year into the gravest financial crisis since the Great Depression, millions of Americans have seen their home values and retirement savings plunge and their jobs evaporate.

What they haven't seen are any Wall Street tycoons forced to swap their multi-million dollar jobs and custom-made suits for dishwashing and prison stripes.

There are plenty of civil and class-action lawsuits from aggrieved investors angered by the losses in their mortgage bonds, hedge funds or pensions. Regulators have stepped up their vigilance after the fact. But to date, no captain of finance tied to the crisis has walked the plank.

There have been some high-profile arrests and federal convictions of financial giants — such as Ponzi scheme king Bernard Madoff and Stanford Financial Group chairman Robert Allen Stanford. They weren't among the causes of the financial meltdown, however, just poster boys for an era of lax enforcement, weak regulation and devout faith in free markets.

"A lot of people who are responsible (for the crisis) seem to have gotten awfully rich in the process," said Barbara Roper, the director of investor protection for the Consumer Federation of America.

The absence of what many would call justice stands out all the more because past financial crises always had their villains. The depression-era had electricity and railroad magnate Samuel Insull, who partly inspired the movie "Citizen Kane." The savings and loan crisis of the 1980's had banker Charles Keating. Energy giant Enron Corp.'s spectacular collapse offered the late CEO Kenneth Lay, a Texas crony of President George W. Bush.

Yet there's no such poster child for the Great Recession, as today's crisis is now called.

One may yet emerge. The FBI has more than 580 large-scale corporate fraud investigations under way. At least 40 of them are scrutinizing players in sub-prime mortgage lending, which was the first domino to fall and triggered a global financial crisis.

"The investigations are very complex; it's not something that's going to turn overnight," said Bill Carter, a spokesman at FBI headquarters. "They are labor intensive. They involve a review of records."

To date, the closest thing to a prosecution of a major actor in the financial meltdown is a civil fraud case that the Securities and Exchange Commission brought on June 4 against Angelo Mozilo, the perma-tanned CEO of mortgage-lending giant Countrywide.

The SEC, in documents filed in a federal courtroom in central California, accuses Mozilo of "deliberately misleading investors" by misrepresenting the risk that Countrywide posed. The SEC also accused him of insider trading because he sold large shares of company stock and options ahead of what he allegedly knew was a coming collapse of mortgage lending.

Unless the Justice Department brings corresponding criminal charges, however, Mozilo could be hit with penalties and a ruined reputation if convicted — but he wouldn't see the inside of a jail cell.

Another big trial is imminent, however. On Oct. 13, a Brooklyn jury will begin hearing the federal prosecution of former Bear Stearns investment fund founder Ralph Cioffi and his fund manager Matthew Tannin.

Two of their hedge funds, offered to mega-wealthy investors and heavily weighted with investments in mortgage bonds backed by sub-prime loans to the weakest borrowers, collapsed in June and August of 2007. Their collapse signaled a gathering storm in mortgage finance that culminated in March 2008 with the government-brokered fire sale of their bank to JP Morgan Chase.

Both men were charged on June 19, 2008, with defrauding investors, passing off as safe the investment in mortgage bonds even though they described the market for sub-prime mortgages as "toast" in their own e-mails. Cioffi also faces charges of insider trading.

Lawyers for both men declined comment to McClatchy, but when their clients were arrested they called the pair scapegoats for the broader financial crisis.

Court documents filed in August show attorneys for the two are trying to suppress evidence that the executives' special trading notebooks have disappeared. The government suspects that Cioffi and Tannin, or someone helping them, made them disappear to cover their tracks.

Cioffi's attorneys also asked in August that the presiding judge quash the use of evidence that points to their clients' lavish lifestyle, including mansions and Ferraris. The documents accused federal prosecutors of "improper appeal to class prejudice." Tannin's attorneys joined the motion on Sept.15.

Class prejudice against bankers is what many Americans feel, evident in the death threats made against some former or current executives at insurer American International Group and other financial firms earlier this year. Wall Street switchboard operators at some institutions no longer provide addresses to phone callers.

Americans are angry because the suffering on Main Street is a spillover from the excessive risk taking and lavish compensation of executives who invested on behalf of the ultra-wealthy. Investors seeking outsized "alpha" returns turned to Wall Street, both seeking to make a short-term killing even if doing so eventually brought the near collapse of the financial system.

President Barack Obama alluded to this on Sept. 14 in a New York speech to commemorate the anniversary of the collapse of investment bank Lehman Brothers, which sent off a global financial panic.

"We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses," Obama said, promising new rules. "Those on Wall Street cannot resume taking risks without regard for consequences."

There are persistent but unconfirmed reports that the FBI and grand juries are looking at the e-mails of executives of failed institutions such as Bear Stearns, which pioneered the process of pooling sub-prime loans for sale to investors, and Lehman Brothers, which was a leader in these toxic products when it collapsed.

Records from AIG, which the Federal Reserve saved from collapse on Sept. 17, 2008, are also thought to be under review. The FBI reportedly is also looking at rating agencies Fitch, Moody's and Standard & Poor's to determine if they knowingly gave pools of sub-prime mortgages AAA investment-grade ratings, the best possible, despite evidence to the contrary.

Carter, the FBI spokesman, declined comment on ongoing investigations.

The lack of any prosecution to date doesn't mean authorities aren't investigating, added Ian McCaleb, a spokesman for the Department of Justice.

"There are ongoing cases. But from a prosecution standpoint, it takes a significant amount of time to develop these things. Most financial fraud cases are very complex and it could take a while to unravel the specifics of each case," he said. "I would characterize financial fraud as one of our top priorities."

Another possibility is that a new politically appointed Financial Crisis Inquiry Commission could turn up something that leads to prosecution. The 10-member panel, created by Congress this month, began probing the origins of the crisis, has subpoena power and could compel testimony. This could, however, lead to conflicts with ongoing legal investigations.

Another reason that there've been no arrests of the perpetrators of the financial meltdown is that agencies such as the SEC, which regulates trading in stocks and bonds, and the Commodity Futures Trading Commission, which oversees the trading of contracts for future delivery of energy and farm products, lack powers of criminal prosecution.

They can bring civil charges that result in fines or pass information to federal prosecutors or the FBI, which under the Bush administration was reorganized to focus less on white-collar crime and more on national security matters and crimes against children.

Legislation introduced in the House and Senate would make it easier for the CFTC to prosecute, especially allegations of market manipulation. Measures would lower the current high threshold for determining manipulation. In 35 years, the agency has won only a single manipulation case, and it's under appeal. The bills also would give commodities regulators powers to bring criminal cases.

"Folks who do the crime shouldn't just pay a fine, but do the time," said Bart Chilton, a CFTC commissioner who's championed the need for prosecutorial powers.

Because it saves time and money, regulators traditionally have negotiated settlements with bad actors, and fines often amount to a business cost.

That, too, may be changing, however. The SEC on Sept. 14 was hit with a stinging judicial rebuke for its half-hearted efforts to punish Bank of America for alleged disclosure failures in the government-brokered purchase of investment bank Merrill Lynch.

U.S. District Judge Jed Rakoff tossed out a $33 million settlement between the SEC and Bank of America, effectively calling it a fig leaf. The agency, he said, looked as if it was enforcing the law while the bank and its CEO, Kenneth Lewis, got away with a slap on the wrist.

"It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the bank's alleged misconduct now pay the penalty for that misconduct," Rakoff wrote in a scathing 12-page opinion that ordered the complaint to proceed to trial.

How Moody's sold its ratings - and sold out investors

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

As Congress tackles the broadest proposed overhaul of financial regulation since the 1930s, however, lawmakers still aren't fully aware of what went wrong at the bond rating agencies, and so they may fail to address misaligned incentives such as granting stock options to mid-level employees, which can be an incentive to issue positive ratings rather than honest ones.

The Securities and Exchange Commission issued a blistering report on how profit motives had undermined the integrity of ratings at Moody's and its main competitors, Fitch Ratings and Standard & Poor's, in July 2008, but the full extent of Moody's internal strife never has been publicly revealed.

Moody's, which rates McClatchy's debt and assigns it quite low value, disputes every allegation against it. "Moody's has rigorous standards in place to protect the integrity of ratings from commercial considerations," said Michael Adler, Moody's vice president for corporate communications, in an e-mail response to McClatchy.

Insiders, however, say that wasn't true before the financial meltdown.

"The story at Moody's doesn't start in 2007; it starts in 2000," said Mark Froeba, a Harvard-educated lawyer and senior vice president who joined Moody's structured finance group in 1997.

"This was a systematic and aggressive strategy to replace a culture that was very conservative, an accuracy-and-quality oriented (culture), a getting-the-rating-right kind of culture, with a culture that was supposed to be 'business-friendly,' but was consistently less likely to assign a rating that was tougher than our competitors," Froeba said.

After Froeba and others raised concerns that the methodology Moody's was using to rate investment offerings allowed the firm's profit interests to trump honest ratings, he and nine other outspoken critics in his group were "downsized" in December 2007.

"As a matter of policy, Moody's does not comment on personnel matters, but no employee has ever been let go for trying to strengthen our compliance function," Adler said.

Moody's was spun off from Dun & Bradstreet in 2000, and the first company shares began trading on Oct. 31 that year at $12.57. Executives set out to erase a conservative corporate culture.

To promote competition, in the 1970s ratings agencies were allowed to switch from having investors pay for ratings to having the issuers of debt pay for them. That led the ratings agencies to compete for business by currying favor with investment banks that would pay handsomely for the ratings they wanted.

Wall Street paid as much as $1 million for some ratings, and ratings agency profits soared. This new revenue stream swamped earnings from ordinary ratings.

"In 2001, Moody's had revenues of $800.7 million; in 2005, they were up to $1.73 billion; and in 2006, $2.037 billion. The exploding profits were fees from packaging . . . and for granting the top-class AAA ratings, which were supposed to mean they were as safe as U.S. government securities," said Lawrence McDonald in his recent book, "A Colossal Failure of Common Sense."

He's a former vice president at now defunct Lehman Brothers, one of the highflying investment banks that helped create the global crisis.

From late 2006 through early last year, however, the housing market unraveled, poisoning first mortgage finance, then global finance. More than 60 percent of the bonds backed by mortgages have had their ratings downgraded.

"How on earth could a bond issue be AAA one day and junk the next unless something spectacularly stupid has taken place? But maybe it was something spectacularly dishonest, like taking that colossal amount of fees in return for doing what Lehman and the rest wanted," McDonald wrote.

Ratings agencies thrived on the profits that came from giving the investment banks what they wanted, and investors worldwide gorged themselves on bonds backed by U.S. car loans, credit card debt, student loans and, especially, mortgages.

Before granting AAA ratings to bonds that pension funds, university endowments and other institutional investors trusted, the ratings agencies didn't bother to scrutinize the loans that were being pooled into the bonds. Instead, they relied on malleable mathematical models that proved worthless.

"Everyone else goes out and does factual verification or due diligence. The credit rating agencies state that they are just assuming the facts that they are given," said John Coffee, a finance expert at Columbia University. "This system will not get fixed until someone credible does the necessary due diligence."

Nobody cared about due diligence so long as the money kept pouring in during the housing boom. Moody's stock peaked in February 2007 at more than $72 a share.

Billionaire investor Warren Buffett's firm Berkshire Hathaway owned 15 percent of Moody's stock by the end of 2001, company reports show. That stake, largely still intact, meant that the Oracle from Omaha reaped huge financial rewards while Moody's overlooked the glaring problems in pools of subprime mortgages.

A Berkshire spokeswoman had no comment.

One Moody's executive who soared through the ranks during the boom years was Brian Clarkson, the guru of structured finance. He was promoted to company president just as the bottom fell out of the housing market.

Several former Moody's executives said he made subordinates fear they'd be fired if they didn't issue ratings that matched competitors' and helped preserve Moody's market share.

Froeba said his Moody's team manager would tell his team that he, the manager, would be fired if Moody's lost a single deal. "If your manager is saying that at meetings, what is he trying to tell you?" Froeba asked.

In the 1990s, Sylvain Raynes helped pioneer the rating of so-called exotic assets. He worked for Clarkson.

"In my days, I was pressured to do nothing, to not do my job," said Raynes, who left Moody's in 1997. "I saw in two instances -- two deals and a rental car deal -- manipulation of the rating process to the detriment of investors."

When Moody's went public in 2000, mid-level executives were given stock options. That gave them an incentive to consider not just the accuracy of their ratings, but the effect they'd have on Moody's -- and their own -- bottom lines.

"It didn't force you into a corrupt decision, but none of us thought we were going to make money working there, and suddenly you look at a statement online and it's (worth) hundreds and hundreds of thousands (of dollars). And it's beyond your wildest dreams working there that you could make that kind of money," said one former mid-level manager, who requested anonymity to protect his current Wall Street job.

Moody's spokesman Adler insisted that compensation of Moody's analysts and senior managers "is not linked to the financial performance of their business unit."

Clarkson couldn't be reached to comment.

Clarkson's own net worth was tied up in Moody's market share. By the time he was pushed out in May 2008, his compensation approached $3 million a year.

Clarkson rose to the top in August 2007, just as the subprime crisis was claiming its first victims. Soon afterward, a number of analysts and compliance officials who'd raised concerns about the soundness of the ratings process were purged and replaced with people from structured finance.

"The CEO is from a structured finance background, most of the people in the leadership were from a structured finance background, and it was putting their people in the right places," said Eric Kolchinsky, a managing director in Moody's structured finance division from January 2007 to November 2007, when he was purged, he said, for questioning some of the ratings. "If they were serious about compliance, they wouldn't have done that, because it isn't about having friends in the right places, but doing the right job."

Another mid-level Moody's executive, speaking on the condition of anonymity for fear of retribution, recalls being horrified by the purge.

"It is just something unthinkable, putting business people in the compliance department. It's not acceptable. I was very upset, frustrated," the executive said. "I think they corrupted the compliance department."

One of the new top executives was Michael Kanef, who was experienced in assembling pools of residential mortgage-backed securities, but not in compliance, the division that was supposed to protect investors.

"What signal does it send when you put someone who ran the group that assigned some of the worst ratings in Moody's history in charge of preventing it from happening again," Froeba said of Kanef. Clarkson and Kanef, who remains at Moody's, were named in a class-action lawsuit alleging that Moody's misled investors about its independence from companies that paid it for ratings.

Kanef went after Scott McCleskey, the vice president of compliance at Moody's from the spring of 2006 until September 2008, and the man that Moody's said was the one to see for all compliance matters.

"It's speculation, but I think Scott was trying to get people to follow some rules and people weren't ready to accept that there should be rules," Kolchinsky said.

McCleskey testified before the House of Representatives Oversight and Government Reform Committee on Sept. 30 and described how he was pushed out on the heels of the people he'd hired.

"One hour after my departure, it was announced that I would be replaced by an individual from the structured finance department who had no compliance experience and who, to my recollection, had been responsible previously for rating mortgage-backed securities," McCleskey testified.

His replacement, David Teicher, had no compliance background. SEC documents describe him as a former team director for mortgage-backed securities from 2006 to 2008.

McCleskey had raised concerns about the integrity of the ratings process, and Moody's had excluded him from meetings in January 2008 with the Securities and Exchange Commission about the eroding quality of pools of subprime loans that Moody's had blessed with top ratings.

SEC officials, however, didn't bother to seek out McCleskey, even though he was the "designated compliance officer" in company filings with the agency. The SEC maintains that its officials met with Kanef because he was McCleskey's superior.

SEC spokesman Erik Hotmire said that officials met with Kanef because "we ask to interview whomever we determine is appropriate."

Another former Moody's executive, requesting anonymity for fear of legal action by the company, said the agency might've understood what was going wrong better if it had talked to the hands-on compliance officials.

"If they had known he'd (Kanef) come from structured finance, the conflict of having him in that position should have been evident from the start," the former executive said.

Others who worked at Moody's at the time described a culture of willful ignorance in which executives knew how far lending standards had fallen and that they were giving top ratings to risky products.

"I could see it coming at the tail end of 2006, but it was too late. You knew it was just insane," said one former Moody's manager. "They certainly weren't going to do anything to mess with the revenue machine."

Moody's wasn't alone in ignoring the mounting problems. It wasn't even first among competitors. The financial industry newsletter Asset-Backed Alert found that Standard & Poor's participated in 1,962 deals in 2006 involving pools of loans, while Moody's did 1,697. In 2005, Standard & Poor's did 1,754 deals to Moody's 1,120. Fitch was well behind both.

"S&P is deeply disappointed in the performance of its ratings on certain securities tied to the U.S. residential real estate market. As far back as April of 2005, S&P warned investors about increased risks in the residential mortgage market," said Edward Sweeney, a company spokesman. S&P revised criteria and demanded greater buffers against default risks before rating pools of mortgages, he said.

Still, S&P continued to give top ratings to products that analysts from all three ratings agencies knew were of increasingly poor quality. To guard against defaults, they threw more bad loans into the loan pools, telling investors they were reducing risk.

The ratings agencies were under no legal obligation since technically their job is only to give an opinion, protected as free speech, in the form of ratings.

"As an analyst, I wouldn't have known there was a compliance function. There was an attitude of carelessness, or careless ignorance of the law. I think it is a result of the mentality that what we do is just an opinion, and so the law doesn't apply to us," Kolchinsky said.

Experts such as Columbia University's Coffee think that Congress must impose some legal liability on credit rating agencies. Otherwise, they'll remain "just one more conflicted gatekeeper," and the process of pooling loans — essential to the flow of credit — will remain paralyzed and economic recovery restrained.

"If (credit) remains paralyzed, small banks cannot finance the housing demand. They have to take them (investment banks) these mortgages and move them to a global audience," said Coffee. "That can't happen unless the world trusts the gatekeeper."