Water Cooler News: Financial News This Week

By Andrew Beattie | February 22, 2010 AAA
Water Cooler News: Financial News This Week

The past week's headlines have been filled with a lot of capital "R" words: Revelations, Recalls, Revenge and Repentance. The latter, repentance, belonged to Tiger Woods. Long considered more of a walking brand than a person, Mr. Woods has apologized for his poor driving and some other stuff surrounding it. The U.S. is awaiting an apology from another walking brand, Mr. Toyoda of Toyota.

Big In Japan
Japan, the country that added karoshi (death by overwork) and kaizen to our vocabulary, has been rocked by the Toyota recall. Toyota represented the superior technique and quality control that has set the standards for Japanese production. Toyota's failure to catch the accelerator flaws in the production stage along with the delay before the recall has made headlines worldwide. Mr. Toyoda is set to testify to congress on what was known and when.

This might represent a change in how auto recalls are done in the United States, as production was halted at Toyota while mass recalls were issued on evidence of 34 fatalities linked to the flaw. By contrast, Ford SUV rollovers spanned a much longer time frame and exponentially more deaths before any action was taken by the company or the NHTSA.

Opening Pandora's Box
The possible Greek debt default was the other big international story. Greece's household budget has been shaky at best, with public outlays eating up more and more of the country's income. As the loans pile up and the payments on previous bonds eat up even more, Greece has been forced to float another set of bonds to help pay for the old ones. If this doesn't work, the options are default or a German rescue. Investors are waiting to see just how much of a union the European Union really is.

The Big Squeeze
In what was meant to be a subtle move, the Fed raised the rate it charges banks for emergency loans. This is the first meaningful rate rise since the credit crises began and all rates were dropped to near zero. This may mean Mr. Bernanke is beginning to idle down the printing presses and pull out the extra liquidity from the economy in order to avoid inflation and/or another speculative bubble. (Learn more about the economics behind this, read How Interest Rates Affect The U.S. Market.)

All You Can Eat Buffett
The Berkshire Hathaway stock split was exciting news for investors. The split has made the stock affordable to individual investors, making it much easier to put the Oracle of Omaha on your payroll. These shares, split 50-for-1, are being called the Baby Berkshires, joining the Baby Bells and Baby Bills in the buzzwords section of the financial lexicon. (For more on stock splits and what they do, read Understanding Stock Splits.)

A Battle of Icons
Two of the most infamous names in finance, the bust-and-boom Donald Trump and the corporate-raider-turned-shareholder-activist Carl Icahn, are in a battle for Trump Entertainment Resorts. Yet another Trump-named bankruptcy, the judge is evaluating two different plans. One allows Trump to keep a stake in the company and hand most of the control to one group of bondholders. Trump's financial stake in the company is limited; basically he will be getting paid for continuing to lend his name to the debt-ridden enterprise.

Icahn's group wants to keep Trump's name but get rid of Trump. Icahn would deleverage the company, hurting bondholders but leaving the company emerging from bankruptcy with a much stronger balance sheet than the Trump plan.

Google Buzzes, and Yahoo and Microsoft Join Forces

Two significant events occurred in the online world. Google rolled out its social networking initiative, Google Buzz. This puts it in competition with companies like Facebook and Twitter.

While Google is broadening its business, Yahoo is focusing its model. Yahoo and Microsoft were cleared by the U.S. and the EU to merge parts of their business. Microsoft's search engine, Bing, will now operate on Yahoo's site. This frees up Yahoo to focus on being a content aggregator. Basically, Google has entered every online business it can think of, and Microsoft is making headway in what was once Google's core business - search.

A Disgruntled And Deadly Taxpayer

Sadly, the review of this week's financial events must end on a somber note. On Thursday, February 18th, Joseph Stack flew a small plane into a building where IRS employees worked. Stack was enraged by a tax dispute and decided that a kamikaze flight was his only option. The attack killed one worker and left others injured.

While the tax code is a complex and unwieldy beast, attacking IRS employees will not bring about any favorable change. True tax change must be legislated and, in a democracy, we influence change by making informed choices on voting ballots. If we start trying to initiate change through violence, there is little chance that the changes brought about will be positive.

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