A preview of the issue on newsstands March 21st

NEW YORK, March 21 /PRNewswire/ --

THIS WEEK:

Cover Story: Reluctant Revolutionary

-- Street of Fear

-- A Few Bright Spots

-- Hillary Seizes the Moment

For these stories and more, visit www.BusinessWeek.com

(Photo: http://www.newscom.com/cgi-bin/prnh/20080321/NYF004 )

COVER STORY: THE FED'S REVOLUTION

By Michael Mandel and Peter Coy

The current financial crisis -- perhaps the biggest since the Great Depression -- has turned Federal Reserve Chairman Ben Bernanke into a reluctant revolutionary. The quiet academic who wanted to make the post of Fed chairman less heroic is leading a dramatic expansion of the central bank's role. In the process, he is setting the stage for the next big boom -- or bubble. In the short run, Bernanke is waging a war to keep the financial markets from collapsing. The biggest move so far: On Sunday, Mar. 16, the Fed brokered the fire sale of troubled investment bank Bear Stearns to JPMorgan Chase and announced that it would be willing to lend directly to major Wall Street brokers, which have never before had access to loans from the central bank. The two moves represented a new level of direct Fed involvement in the financial markets and made it clear that Bernanke would take any step needed to prevent a financial catastrophe. At the same time, by stepping in so aggressively, Bernanke is pouring an enormous slug of money into the financial system. To be sure, its full impact won't be felt right away, because banks are reluctant to lend and consumers are afraid to borrow. Indeed, consumer spending is likely to lag, leading to job cuts in coming months and a deepening of the recession. Eventually, though, the Fed's stimulus will show up as some combination of stronger economic growth and higher asset prices. http://www.businessweek.com/magazine/content/08_13/b4077028370532.htm?campaign _id=pr_newswire

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STREET OF FEAR

By Matthew Goldstein, Emily Thornton, and Mara Der Hovanesian, with David Henry, Ben Levisohn, and Roben Farzad in New York

Wall Street is careening from crisis to crisis like a character on the hit TV show Lost. The latest plot twist: Bear Stearns' surprising swoon toward bankruptcy, which sent the stock market tumbling in mid-March. But while the markets may have averted one disaster with the Federal Reserve-backed buyout offer for the investment bank by JPMorgan Chase, the subprime saga is far from over. There's no telling when the fog will lift for good. For one thing, the original Bear deal is far from certain: Shareholders may be holding out for a higher price than the shockingly low $2 per share initially offered. When Bear does hook up with JPMorgan or maybe another suitor, that won't unfreeze the credit markets. The Fed is still the only buyer of risky mortgage securities in town. A Bear Stearns spokesman declined to comment. What's more, there are no more giant banks able to step in should another major firm find itself on the precipice. JPMorgan has its hands full with Bear, while Citigroup, Bank of America, and Merrill Lynch don't have the deep pockets to make a big deal. Meanwhile, vulture investors with billions in cash are still largely waiting on the sidelines for the elusive market bottom -- a sign the group thinks there's more room to fall. There are, to be sure, some reasons for optimism. But many investors, burned by premature excitement in recent months, are curbing their enthusiasm now. The next crisis, after all, could emanate from almost any corner of the financial world. http://www.businessweek.com/magazine/content/08_13/b4077035375807.htm?campaign _id=pr_newswire

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A FEW BRIGHT SPOTS

By Peter Burrows, with Jena McGregor, Brian Hindo, and Arlene Weintraub

A housing slump. Inflation fears. Record oil prices. The demise of a major Wall Street bank. Are there any safe havens? "Health care," quips David Wyss, chief economist at Standard & Poor's. "Because this economy is going to make all of us sick." He's not entirely joking. Amid widespread gloom about the economy, health care is one of the few sectors that remains relatively strong. But there are others. Most technology, energy, mining, and food-production companies are holding up well. In addition, multinationals with a high percentage of sales overseas, such as General Electric, Caterpillar, and Deere, are benefiting from the weakening dollar and strong demand abroad. Deere boosted earnings by 55% in the first quarter and raised its revenue and profit forecast for its full fiscal year. It helps to sell into the commodities market, where prices are surging. Farmers, who can make twice as much for their corn as they could a year ago, are buying up tractors, fertilizer, and seed. These industries will play an important part in the U.S. economy's future. If they continue to hold up, they'll provide much-needed stability for jobs, stocks, and economic activity. Health care will be particularly important since it's the largest sector of the U.S. economy, at 17% of gross domestic product. Without the ballast of these sectors, the current turmoil would clearly be aggravated. http://www.businessweek.com/magazine/content/08_13/b4077040378620.htm?campaign _id=pr_newswire

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HILLARY SEIZES THE MOMENT

By Jane Sasseen

When news of the Bear Stearns fire sale hit on Mar. 17, it didn't take long for reaction to come in from the campaign trail. All three candidates -- Republican John McCain and Democratic rivals Hillary Clinton and Barack Obama -- made statements that day supporting the need for swift action to ensure financial stability. But only one mentioned she had talked that morning with Treasury Secretary Henry M. Paulson Jr. and the head of the New York Federal Reserve to get an update and pass along her views on the government-engineered deal. It was a small but telling move designed to highlight Clinton's contacts and knowledge of the issues at the heart of the crisis. It won't be the last of such moves. On Mar. 20, Clinton was expected to call for a second stimulus bill targeted more directly toward struggling homeowners. She also plans a renewed push for an earlier plan that would provide $30 billion to help blighted towns buy foreclosed properties. Further initiatives are likely in the coming weeks. The idea, of course, is to show voters exactly what Clinton would do to head off the crisis if she were in the White House. While her proposals are meant to provide a stark contrast to what many see as the too-slow approach of the Bush White House, that's hardly the only comparison her campaign would like voters to draw. The clear signal is that, unlike Senator Obama, she's got the experience and the plans to address America's economic woes. http://www.businessweek.com/magazine/content/08_13/b4077042381294.htm?campaign _id=pr_newswire

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NONE SO BLIND

By David Henry, with Ben Levisohn in New York

The credit crisis has reached its ninth month, but bankers, regulators, and investors are still flying blind. Every week seems to bring a new flare- up, from the panic in the auction-rate securities market to the Bear Stearns blowup. Yet every new turn catches the pros by surprise. Now Main Street, which is being forced to cover much of the tab for Wall Street's recklessness, wants answers to two basic questions: How could the crisis have gotten so bad? And why didn't the people in charge see it coming and prevent it? In hindsight, the problems seem all too obvious. First, Wall Street dreamed up securities that promised beefier returns but made it harder for outsiders to see all the risks being taken. Next, a slew of fee-collecting middlemen -- from mortgage brokers to bankers, securities dealers to hedge fund traders -- descended on the market with powerful incentives to keep it going. By 2006 some observers had begun warning of the excesses building in the credit markets and cautioning that regulators had fallen behind, while a few prescient investors even began betting against the market. But the early warnings were mostly ignored. http://www.businessweek.com/magazine/content/08_13/b4077044382748.htm?campaign _id=pr_newswire

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DOLLAR DAZE IN EUROPE

By Jack Ewing, with Kerry Capell in London, Carol Matlack and Jennifer Fishbein in Paris, and Barbara Frye in Prague

Global currency turmoil seems far away from the Kathrein-Werke antenna factory in the Bavarian city of Rosenheim. But upstairs in the unpretentious executive offices, Anton Kathrein wears a grave look. Hard times are coming to Rosenheim's biggest private employer, he warns. With the euro edging up toward $1.60, Kathrein's four Rosenheim factories can no longer compete on price with U.S. and Asian rivals. The question hanging over Europe is, how many companies will suffer the same pain as Kathrein? So far, Europe's economy has shown remarkable resilience as the dollar has lost nearly half its value against the euro since 2000. German exports rose 9% in January vs. a year earlier, while unemployment in the country stands at 8.6%, down from 12.7% in 2005. With a few notable exceptions, such as Switzerland's UBS, European banks have escaped the worst of the subprime crisis. There are signs of deflating real estate bubbles in Spain and Britain, but no Continent-wide slump. And while growth may slow from 2.6% in 2007, this year the euro zone is still likely to clock a respectable 1.8% or so, Dresdner Bank predicts. http://www.businessweek.com/magazine/content/08_13/b4077046387061.htm?campaign _id=pr_newswire

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REFIGHTING NAFTA

By Pete Engardio, Geri Smith, and Jane Sasseen, with David Kiley and David Welch in Detroit

Trade hawks hunting for the corporate villains behind the flight of U.S. manufacturing jobs to Mexico might find General Electric a handy target. In the 14 years since the North American Free Trade Agreement dismantled most barriers to trade and investment between the U.S., Canada, and Mexico, GE has sent thousands of U.S. jobs making everything from refrigerators to electric meters to Mexico. Today, the conglomerate and its joint-venture partners employ 30,000 Mexicans at 35 factories. GE is moving higher-value work, too: It now hires an engineer a day at its 1,050-staff engineering and design center in Queretaro. Starting pay there is one-third of U.S. salaries. But the story of GE and Mexico is about more than lost U.S. jobs. Since 2006, GE has struck deals to sell Mexican companies $350 million worth of turbines built in Houston, 100 locomotives made in Erie, Pa., and scores of aircraft engines. GE Capital has amassed $10 billion in real estate, corporate loans, mortgages, and other assets south of the border. This is what a free-trade deal is intended to achieve. Mexico specializes in industries where its cheap labor gives it an edge, and it imports U.S. goods requiring advanced technology and major capital investment. Some U.S. workers lose jobs, but new ones are created in services and heavy manufacturing. In an election year, at a time when the U.S. working class is in growing distress, such logic is drowned out. Nafta has suddenly reemerged as a hot-button issue. http://www.businessweek.com/magazine/content/08_13/b4077000922817.htm?campaign _id=pr_newswire

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HBO: FROM HITMEN TO HITLESS?

By Tom Lowry

Has HBO lost the magic? That question has bedeviled Time Warner's premium cable channel ever since The Sopranos ended its seven-season run in June and ascended to rerun heaven. Time and again, HBO has failed to deliver a follow- up hit. Its greatest hope, John from Cincinnati, so perplexed viewers with its attempts to meld the zen of surfing with gnostic Christian themes that HBO pulled the plug. And it's telling that HBO, supercautious about putting programs online for free, did exactly that to create buzz for In Treatment, which follows the travails of a psychologist and has been on air only since late January. Something had to give. And on Mar. 16, it did. HBO announced that Carolyn Strauss, the entertainment president who helped shepherd popular shows into being, including Six Feet Under, would be stepping down from her post after working at the network for 22 of her 44 years. Strauss declined to comment on the shakeup, but insiders say she was pushed by a new regime that had lost patience with her and HBO's dearth of big hits. Strauss' ouster follows by 10 months the wrenching departure of Chris Albrecht, the programming czar who left after being charged with assaulting his girlfriend. The turmoil at HBO lacks the bloody mayhem of the network's most famous show. But there is enough dramatic tension to keep HBO's 29 million subscribers glued to their screens. http://www.businessweek.com/magazine/content/08_13/b4077050393595.htm?campaign _id=pr_newswire

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IT'S TOO DARN HOT

By Steve Hamm

The tech industry is facing an energy crisis. The cost of power consumption by data centers doubled between 2000 and 2006, to $4.5 billion, and could double again by 2011, according to the U.S. government. With energy prices spiking, the challenge of powering and cooling these SUVs of the tech world has become a major issue for corporations and utilities. The race is on to come up with creative solutions. Companies are scouring the globe for new technologies and advantageous locations. Iceland may have the ideal climate; Saudi Arabia may offer the lowest energy costs. Every company in the business is looking to squeeze expenses in hopes of becoming the low-cost producer in the Digital Age. Where will the breakthroughs come from? Utilities, construction companies, and tech outfits all are working on the issue. http://www.businessweek.com/magazine/content/08_13/b4077060400752.htm?campaign _id=pr_newswire

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LEXUS: TOO JAPANESE FOR THE JAPANESE

By Ian Rowley, with Hiroko Tashiro in Tokyo

When Toyota introduced its Lexus brand in Japan three years ago, the company was hoping drivers like Masayoshi Haku would swoon over the luxury lineup. The 46-year-old doctor is a car lover with a $110,000 BMW 750 sedan and a $60,000 Porsche Boxster, so he should have been a prime customer for Lexus. But Haku hasn't taken the bait. Why? Lexus is too Japanese for his tastes. "Lexus makes excellent cars. But if you ask me whether I'd buy one, the answer is no," says Haku. "Foreign brands have more individuality." For most Japanese car buyers, "foreign" really means "German." Although Lexus hit American showrooms 19 years ago and has been the top-selling luxury nameplate in the U.S. since 2000, it didn't arrive in Japan until 2005. By that time German brands dominated the high end, and Lexus has had a tough time getting a toehold, reaching only 60% of Toyota's initial sales projections. In 2007, Lexus moved 34,800 cars -- about what it sold in December alone in the U.S. -- and sales so far this year are down. A big problem was the initial lineup. http://www.businessweek.com/magazine/content/08_13/b4077072420049.htm?campaign _id=pr_newswire

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