"The world has certainly changed and the massive growth industry that was Wall Street for the past 20 to 25 years is probably a thing of the past," says one executive.Rising Layoffs Signal Worsening Recession]]>

Rubin Resigns from Citigroup]]>

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Obama's Stimulus Package: Will It Be Too Big To Work?]]>

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Later this month, Brad Carlton, a onetime pool boy who married the boss's daughter to become chief executive of a major cosmetics company, will apparently take a bullet and die for a cause. That cause will not be the woman of his dreams (his former sister-in-law and the estranged wife of his sworn enemy), but daytime soap operas. For all but one of the last 24 years, Carlton—a onetime Navy Seal and a secret Nazi hunter—has been a character on The Young & The Restless, the daytime ratings champ for the last two decades. But Carlton, played by Don Diamont, and three other prominent characters on the CBS show have been axed as part of the severe retrenchment seizing daytime soaps—one of TV's oldest formats, its quintessential advertising vehicle, and the birthplace of product placement. The financial crisis is hurting daytime soaps more than other shows, and may well doom them. Not so long ago, there were 16 soaps. Today, there are eight—with more cancellations seemingly imminent in the face of TiVo, D.V.R.'s, decreased market share, declining ratings, and the loss of financially pressed auto dealers as local advertisers. "I see this moment as the turning point for soaps," a top CBS executive told me. "No format has been hit harder than daytime serials." The executive says that within the next two months the network plans to dramatically slash the licensing fees it pays to the independent production companies that make its soaps. NBC recently did the same to the fees paid for its lone entry, Days of Our Lives—which have recently run about $1.8 million a week. Two longtime (and expensive) Days cast members (Deidre Hall and Drake Hogestyn) have been dumped in order to keep the show on NBC for another 18 months. To trim costs, NBC wants producers to reduce actor salaries by as much as 40 percent. In September 2007, NBC moved another soap, Passions, to DirecTV before shutting down the program altogether. Insiders at Days, a daytime staple since 1965, say they won't be surprised if the sands in their show's hourglass run out too. A similar fate awaits CBS' Guiding Light, which debuted on radio in 1937 before becoming the longest-running drama in TV history. "That show isn't even treading water," says a network exec. "It's sunk below the waves." An even more ominous sign for the industry: For the first time, the Daytime Emmys—designed specifically to promote daytime soaps—won't even be broadcast. Major networks deemed the fees too excessive for a show that draws abysmal ratings. Even the cable channel Soapnet isn't airing it.  It used to be that the networks needed the daytime profits to finance the more expensively produced (and unprofitable) prime-time programs. By blending message and melodrama—ads were cunningly buried in the plot—"sudsers" became the perfect subliminal salesmen. The soap format peaked at the 1981 wedding of Luke and Laura on General Hospital, with an estimated 30 million viewers tuning in. The show's popularity inspired a Top 30 song called General Hospi-tale. ("I just can't cope/Without my soap") and the movies Tootsie and Soap Dish. In recent years, market leader Y&R has seen its audience shrink precipitously, to an average of 5 million total viewers in 2008. In the old days, soaps were generational—your grandmother got your mother hooked, and she, in turn, got you hooked. Today the median age of viewers is rising, but older viewers are dying off (literally) and are not being replaced by younger ones. (The median age for Y&R is nearly 60.) If interested, younger viewers can watch soaps in less time on the official network websites and, commercial-free, on YouTube. "There are as many theories about lost viewership as there are cheating spouses in daytime serials," says the blogger Toni Pimentel, who added that her Y&R spoiler Web site (young-restless.com) averages 2 million hits a month. "Most obviously, more women work outside the home—or are otherwise occupied," Pimentel says. "And for those who are at home, and in front of a TV, there are more viewing options—hundreds of cable and 'speciality' channels—and don't forget the increasing popularity of talk shows." The ratings of ABC's The View rose 16 percent in 2008. More than 4 million viewers now watch the gabfest, a comparative bargain. When the cuts come, producers of the three CBS soaps turning a "marginal" profit may have little choice but to drastically chop production costs, lop off beloved characters, and renegotiate the salaries of those who are left. Unfortunately for the networks, viewers say they tune in to see the old standbys. Unfortunately for advertisers, network-commissioned surveys have found that a large segment of the soap audience is poor, middle-aged African-American women. "That's definitely not the demo sponsors are targeting," says a network exec. The world will continue to turn, but soaps may not be slippery enough to escape the current crunch.Related LinksNews-division Layoffs at NBC, CBSStaying the CourseSummertime Slump

Hey Congress, act boldly and act now! That pretty much sums up President-elect Barack Obama's speech Thursday on the need for a stimulus package to reverse the economy's downward spiral. The speech, which was an unprecedented public policy effort for an elected president to make before his inauguration, was delivered at George Mason University in Virginia but its intended audience is sitting on Capitol Hill. Obama repeatedly spoke to members of Congress, imploring them to avoid their usual legislative process which can include weeks of debate and countless earmarks for pet projects. Instead, Obama asks them to overcome partisanship and act immediately. While he acknowledges the pressure his plan will put on the budget deficit, which the Congressional Budget Office estimates will hit $1.2 trillion this year before this stimulus package, Obama emphasized the potentially greater costs of doing nothing. "For every day we wait or point fingers or drag our feet, more Americans will lose their jobs. More families will lose their savings. More dreams will be deferred and denied. And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."Today's speech was short on details and long on urgent rhetoric. The Obama transition team estimates that the stimulus package will cost at least $775 billion, but that figure could climb as high as $1.3 billion by some estimates. This will include tax cuts for working families and relief for states burdened by overstretched budgets. It will encompass public works projects as well as private sector growth in energy and health care sectors. Obama estimates the plan will create or save three million jobs over the next few years. The speech also included a shout-out to the many Wall Street firms that have received TARP money, suggesting the days of loose accountability for how the funds are spent are over.  Obama's package will include further efforts to save embattled banks from bankruptcy, "but only with maximum protections for taxpayers and a clear understanding that government support for any company is an extraordinary action that must come with significant restrictions on the firms that receive support."     Related LinksFinally, Drama! A Geithner vs. Bair Clash?Obama's Real Economic TeamObama's Economic Team

"Having been under pressure from the cash crunch since August last year from the U.S. subprime mortgage crisis, I worked hard to have my investors at least recover their principal. I feel sorry to my friends for failing to achieve that. I'd like to pay my debt back by death." Those were the words a 55-year old South Korean asset manager wrote before he killed himself in a Seoul hotel room last fall. Financial pressure. Regret. Failure. Suicide. Sadly, it's a pattern repeating itself in many other financiers' lives around the globe during this economic downturn. Earlier this week, the German billionaire Adolf Merckle ended his struggle to emerge from massive corporate debts with the decision to throw himself in front of a train. And yesterday, Steven Good, a well-known real estate executive from Chicago, gave into the pressure by turning a gun on himself. It's the same story we've heard over and over since this crisis began. The laid off Bear Stearns banker leaps from a Manhattan building, the London-based investment manager jumps in front of a high-speed commuter train, the French hedge fund investor slits his wrists after finding out his clients' investments in Bernie Madoff's fund had vanished overnight. displayPromoModule ('{"moduleType":{"value" : "featuresModule", "index" : "1"},"mediaType1":{"value" : "article", "index" : "0"},"mediaType2":{"value" : "article", "index" : "0"},"mediaType3":{"value" : "article", "index" : "0"},"mediaType4":{"value" : "article", "index" : "0"},"url1":"/news-markets/top-5/2008/12/28/The-Hope-Indicators","url2":"/news-markets/national-news/portfolio/2009/01/07/Environmental-Investing","url3":"/views/columns/economics/2009/01/07/Spotting-Signs-of-Economic-Recovery","url4":"","teaser1":"When will we ever see signs of a recovery? Ten things to start watching for in 2009.","teaser2":"How investors can survive and thrive during environmentally challenging times.","teaser3":"Why it’s possible that this downturn could end quicker than anyone thinks.","teaser4":"","headline1":"The Hope Indicators","headline2":"Growing Greenbacks","headline3":"The Case for Optimism","headline4":"","title":"Also on Portfolio.com" }'); And it's not just the suicides of the rich making headlines. Foreclosed homes, lost jobs, and depleted savings accounts are driving too many people to take their lives. But are suicides actually on the rise, or are merely the reports of suicides on the rise? This question has been studied and debated for decades by historians, researchers, academics and mental health professionals. Studies showing rising suicide rates during times of economic recessions are consistently conflicted by studies that prove the opposite. We know that the stories of stockbrokers jumping from skyscraper windows on Black Monday were nothing more than urban myths. But we also know that suicide rates did rise dramatically during the years following the stock market crash of 1929. Indeed, the highest rate of self-inflicted deaths in the U.S. occurred in 1933, the same year the unemployment rate reached an all-time high of 25 percent. The American Association of Suicidology recently released a statement underscoring that, while suicide rates have shown no clear association with times of economic recession, there is a clear relationship between suicide and unemployment. Stressful life events can lead to suicide, and the trade group is particularly concerned about the potential effect the rising foreclosure rates could have on the psyche of the most vulnerable homeowners. Whatever the historical statistics show, there is ample anecdotal evidence that the economic hardships many individuals are facing today can lead to depression, and depression can lead to suicide. Suicide hotlines in a number of states have reported significant increases in call volume. The World Health Organization warned last fall that many countries could see a rise in suicides and mental health illnesses. The recent reports of financially linked suicides around the globe should be enough to make everyone look out for potential signs of suicide among those most affected by the financial crisis. Because financial debts should never be paid back by death. Related LinksThe Case for OptimismWorst of TimesWhen Will It End?

Time Warner's new-year surprise $25 billion writedown today was bad enough, because it suggests that the media giant's advertising-supported cable, publishing, and internet businesses are worth less and less with each passing quarter. Worse is its warning of a probable loss for all of 2008, because it would be the first loss in six years and comes less than two months after it had forecast earnings of more than $1 a share. (Though it's unlikely to come close to the $98.7 billion loss posted in the year after the disastrous merger of AOL and the original Time Warner.) But worst of all is what Time Warner's profit warning suggests for the rest of the industry, particularly newspapers, magazines, and all of the other old-media companies struggling to transform themselves into Web-based information businesses. J.P. Morgan analyst Imran Khan took Time Warner's announcement and backed out some online advertising numbers. What he found confirmed his suspicions about Web-ad spending trends. In a note to investors, Khan concluded that Time Warner's profit warning suggested an 18 percent year-over-year decline in online advertising revenue at the company's AOL unit. He reckoned that the change could have translated into a $64 million drop in revenue in those three months alone. Where did the money go? Certainly not to Time Warner's cable or magazine publishing businesses: They, too, were reporting declines. Some of the decline may well have been attributable to a general retreat in ad spending during a particularly nasty economic slump. But Khan said it also illustrates a shift away from online "display" ads—the banners across the top of web pages or the boxes filled with animation and music—and toward search-based ads. Those are the dull, but particularly effective plain-text ads that pop up on search engines or are added to web pages by brokers like Google. "The implied weakness is consistent with our thesis that online advertising budgets are being reallocated to search," Khan wrote. "Although AOL historically underperformed the market, we think the broader implication here is that demand continues to soften."Related LinksOnline Ad Revenue UpYahoo Earnings: Just How Bad?Search Advertising's Scalability Problems

Spurred by the surprise emergence of new evidence on a computer hard drive, the Securities and Exchange Commission has reopened a major insider trading investigation it was strongly criticized for dropping, people with knowledge of the case said. The inquiry has to do with giant hedge fund Pequot Capital Management and its chairman and C.E.O., Arthur Samberg. Portfolio.com has learned that within the last two weeks the S.E.C. issued a subpoena in the case, a step taken only in a formal investigation approved by senior agency officials. Reopening the investigation marks a new embarrassment for the beleaguered S.E.C., suggesting that, as in the Bernard Madoff case, it may have failed earlier to follow up adequately on strong indications of possible wrongdoing. People close to the case said the subpoena is for the hard drive from a computer owned by David Zilkha, a former Microsoft employee who briefly worked for Pequot in 2001. The S.E.C. and other federal investigators already have printouts of e-mail messages on the hard drive. Copies of the emails obtained by Portfolio.com appear to show Zilkha soliciting nonpublic information about Microsoft from a neighbor who was a more senior official at the software company. The original S.E.C. investigation, which ended in 2006 without the agency taking any action, had looked into whether Samberg had made highly profitable trades based on confidential information from Zilkha about Microsoft earnings. The earlier investigation, which had focused on Pequot trading in 2001, drew wide attention after the S.E.C. in 2005 fired the lawyer handling it. The S.E.C. lawyer, Gary Aguirre, contended he'd been fired for political reasons relating to a separate facet of the case: Whether Morgan Stanley C.E.O. John Mack may have given Samberg inside information relating to a planned acquisition by General Electric. Aguirre claimed he was fired because higher ups at the S.E.C. didn't want him to depose the politically connected Mack. A subsequent investigation by two Senate committees, and by the S.E.C.'s own inspector general, backed Aguirre and found that the S.E.C. was wrong to have shut down the investigation. Ever since, two Republican Senators, Arlen Specter of Pennsylvania and Charles Grassley of Iowa, have pressed the S.E.C. to reopen the case. The existence of the hard drive became known through Zilkha's contested divorce case in Connecticut. People close to the case say that Zilkha's now ex-wife had obtained and kept the hard drive from his home computer before they split up. The drive contains email exchanges between Zilkha and Mark Spain, a more senior Microsoft official, in 2001, when they were both living in Redmond, Washington. At the time, Zilkha was still working for Microsoft, although Samberg had offered him a job and was pressing him for information on Microsoft. Copies of the newly obtained emails show, for example, that on April 7, 2001, Zilkha sent Spain an email with the subject line "Any visibility on the recent quarter?" The message said: "Hey there. Have you heard whether we will miss estimates? Any other info? David."  A reply from Spain the next day said: "march was the best march on record. made up the shortfall in us sub w2k pro major contributor. on trace for revised forecast (MYR)" That email appeared to indicate that Microsoft was likely to do much better than the substantially lower earnings analysts at the time were predicting. "w2k" pro evidently refers to sales of Microsoft's Windows 2000 program, and "MYR" to mid-year review. As a product manager, Zilkha normally wouldn't have been privy to overall corporate earnings information. The hard drive doesn't contain any evidence that Zilkha passed the information to Samberg. But the exchange between Zilkha and Spain appears to fill a key gap in evidence obtained during the original S.E.C. investigation. The timing coincides with Samberg trades in Microsoft puts and calls, and fits in with other email traffic between Samberg and Zilkha. On April 6, 2001, for example, Samberg wrote to Zilkha that he owned Microsoft but was worried about reports that Microsoft was about to disclose weak profits. "Any tidbits you might care to lob in would be appreciated," Samberg wrote. The records show that Samberg had been considering reducing his position in Microsoft at the beginning of April 2001, after he'd suffered losses and analysts had forecast that Microsoft would report a drop in earnings. But on April 9, Samberg started buying thousands of Microsoft puts and calls, which had the effect of greatly increasing his bet that the stock would rise. When Microsoft disclosed better-than-expected earnings on April 19, Samberg reaped an indicated profit of more than $12 million on his added investment. The day after Microsoft's earnings announcement, Samberg emailed Zilkha: "I shouldn't say this, but you probably have paid for yourself already." While the newly obtained emails from Zilkha's home computer don't prove that he passed information to Samberg, people close to the case said it would provide additional basis for the S.E.C. to investigate whether Zilkha had communicated inside information to him. The Senate committees' report in 2007 had specifically faulted the S.E.C. for not looking into any communication between Samberg and Zilkha between April 6 and April 9, 2001. New questions about Samberg's relationship with Zilkha began cropping up a few weeks ago. As Portfolio.com reported, recently filed records in Zilkha's divorce showed that beginning in April 2007, Samberg paid Zilkha $1.4 million, and has promised to pay him an additional $700,000 in April 2009. Senate investigators have been looking into whether the payments may have been some type of reward to Zilkha for not giving information to investigators. Zilkha had worked for Pequot for only a few months in 2001 before Samberg fired him, testimony from the S.E.C. investigation shows, and Zilkha has had no known link to Pequot or Samberg since then. The Senate Judiciary and Finance committees recently demanded that Samberg turn over any records explaining the payments to Zilkha. He responded, but in the Senate on Tuesday Specter said that the information wasn't adequate and that the committee was trying to obtain more. Meanwhile, Specter disclosed that he had written to S.E.C. chairman Christopher Cox on Dec. 29, demanding that the insider trading investigation be reopened. The issue cropped up in the divorce case because Zilkha disclosed the payments on financial statements he is required to file with the court. The ex-wife, Karen Zilkha, is seeking to her ex-husband and Samberg about the payments under oath. Aguirre, the former S.E.C. lawyer, went further than Specter. In a January 2, 2009 letter to Cox, he called for opening a criminal investigationinto "possible witness tampering, bribery, obstruction of justice" and conspiracy. In addition to the Samberg payments to Zilkha, Aguirre wrote that prosecutors should look into Zilkha's apparent failure to have turned over the email records while the original investigation was still open. A December 2005 S.E.C. subpoena to Zilkha required him to turn over all email records of his contacts in 2001 with Microsoft and Samberg. The S.E.C. declined to comment. David Zilkha didn't respond to messages left on his cell phone number seeking comment. His attorney, Henry Putzel III, said he wouldn't have any comment. Mark Spain didn't immediately respond to a message left at his office phone number at Microsoft. A Microsoft spokeswoman said the company wouldn't have any comment. A Pequot spokesman said he wouldn't comment on specific developments but said: "We will cooperate fully with all requests for information and are confident that Pequot's trading in Microsoft was at all times proper."Related LinksSticky WindowsReport: Enterprise to Embrace Web 2.0 as Prices DropGoogle to Microsoft: Game On

Wall Street bankers who’ve spent any time in the business often find they suffer from “Goldman Sachs envy”—a bitter mix of resentment and begrudging admiration for the firm’s seemingly endless list of triumphs. It thrived while others struggled, and even if competitors were succeeding, Goldman always one-upped them. It sealed bigger deals, showered its executives with more money, and placed its powerful alumni in higher levels of government. Now, with Goldman emerging from the financial crisis battered but still on top, the Street is seeing something more insidiously silly: a bona fide Goldman conspiracy. “A lot of people think that they must have gotten where they are because of some unfair advantage,” hedge fund manager Bill Fleckenstein says. “Nobody likes to think that someone flat out beat ’em.” (See a list of Goldman Sachs alumni and how they figure into the market turmoil of recent months.) Believers point to the one degree of separation between Goldman bankers and recent financial events. Bush’s Treasury secretary, Hank Paulson, is a former Goldman C.E.O., and his replacement at Treasury, Tim Geithner, was mentored by Goldman alumni. Mario Draghi, who is leading the crisis response for the E.U., is a former Goldman vice chairman. Merrill Lynch C.E.O. John Thain was once Goldman’s co-president, and Wachovia chief Robert Steel was a vice chairman. Ed Liddy, the new C.E.O. of A.I.G., was Goldman’s vice chairman. World Bank president Robert Zoellick was a managing director. Even Neel Kashkari, the 35-year-old tapped to oversee the $700 billion Troubled Assets Relief Program, served at Goldman as a vice president. Are they plotting to take over the world? Who knows. They sure are a tight-knit group, and potential conflicts abound. When we asked the participants about their roles in the alleged conspiracy, some didn’t appreciate the joke. Goldman said that such claims are ludicrous. In fact, a spokesman said that the firm is at a disadvantage, since its alums must go out of their way to avoid the appearance of favoritism. Geithner, Paulson, the S.E.C., and others also dismissed the theories. But for those who believe in smoky back rooms and secret handshakes, here’s what your fellow theorists are whispering. Read with the lights on.Related LinksHank Paulson, RevisionistSign of a Bottom?Barney Frank Has Got Your Number

In the aftermath of the stock market crash of 1987, reformers moved to remake America’s regulatory structure. Some experts proposed tinkering with the oversight agencies, merging the Securities and Exchange Commission with the Commodity Futures Trading Commission, for instance. Others recommended regulating derivatives, which were in their infancy. George Soros, not yet the bête noire of right-wingers, took to the editorial page of the Wall Street Journal to warn that nobody was thinking big enough: “The longer markets function without supervision explicitly aimed at maintaining stability, the greater the danger of an accident like October 19, 1987.” Anyone remember the landmark 1987 Securities Act? It never materialized. And did anything happen in 1998, after Long-Term Capital Management nearly went under and a similar dance took place? Many of the same players strutted on the same stage, and Soros again predicted that without sweeping international regulatory reform, we risked “the breakdown of the gigantic circulatory system which goes under the name of global capitalism.” Again, no ’98 Securities Act—perhaps not surprising, given that what followed was a market recovery that we now know was a massive equity bubble. (View a graphic showing how investment vehicles escaped current regulatory measures.) In our current financial mess, hardly a day goes by without another hearing on the failures of the U.S. regulatory ­system or speech on regulatory affairs. In November, Henry Waxman, chairman of the House Committee on Oversight and Government Reform, hauled five of the most influential hedge fund managers before the committee and extracted pronouncements from each of them—some less full-throated than others—that the markets, including hedge funds, needed more regulation. Once again, there was George Soros, as right as ever, leading the Regulatory Light Brigade. This time, the calamity in the markets is more devastating than any of the previous crises since the Great Depression. Luckily, it’s looking like history won’t repeat itself. One of the enduring legacies of this economic collapse will be that the government finally had to embark on a wholesale financial rethinking. Right now, finding a way to end the crisis and reinvigorate the economy is the most pressing issue. But in a few months, after the Obama administration settles in—assuming we aren’t all eating cat food under a bridge—we are going to have the debate we need about how to rebuild the regulatory system. The pressure to put off this debate will be enormous. The financial industry is bound to resist. But Wall Street is at its weakest point in decades; the new administration has to strike while the public temper is at its hottest. “Investors have lost confidence in everything: the regulators, the system, the oversight of Congress, the fairness of our markets,” says Arthur Levitt, a former S.E.C. chairman. “How do you restore that?” One hopeful sign is that President Obama has given the matter significant thought. In a campaign speech in March, he talked about regulating the derivatives markets and raising the capital standards for banks. If that speech becomes the template for reform, it’s a promising start. It’s also promising that Gary Gensler was named co-head of Obama’s search team for a new S.E.C. leader. Gensler has been a prescient critic of excesses at Fannie Mae and Freddie Mac (which were not remotely the cause of the crisis but were inarguably pockets of systemic risk).  First, regulators need to change their ninnyish attitudes. They have gone about their jobs in the past decade like hall monitors at the prom, deeply afraid of being ostracized. They need to bring some mettle to their roles. The challenge is to remake the system so that it’s up to the task of preventing, or at least minimizing, the next global meltdown. Alter the structure all you want, but unless you have the right regulatory attitude, it’ll be for naught. This is not a moment to think small. First, we raze the S.E.C. and the C.F.T.C., along with most, if not all, of the federal banking and state insurance regulatory structure. We should strip the Federal Reserve of its responsibility for regulating banks; it’s enough to oversee the economy. And just as everyone was trying to express how bumbling and irrelevant the S.E.C.’s enforcement approach has been, the agency provided perfect examples. In mid-November, headlines blared that the S.E.C. had charged Mark Cuban, the billionaire owner of the Dallas Mavericks and a frequent blogger, with insider trading. Did he gain secret knowledge of the failure of A.I.G. and sell his stake? Had he done something untoward with regard to Lehman Brothers? No. Four and a half years ago, Cuban sold stock in a company called Mamma​.com based on inside information, according to the S.E.C., and thereby avoided $750,000 in losses. Today, Copernic, Mamma​.com’s successor, sports a market value of less than $3 million. Cuban may well be guilty. But who cares? It’s as if Homeland Security had a ceremony in 2008 to announce that it had erected a gold-plated bollard at ground zero. And come December, it became clear that the S.E.C. had shockingly botched multiple chances to upend confessed Ponzi schemer Bernie Madoff. Before the economic crisis became acute, Treasury Secretary Hank Paulson put forward his plan to remake the regulatory system. Like most of Paulson’s initiatives, it was inadequately explained and poorly sold. And the motivation was exactly wrong, born of a fear of regulation that looks ridiculous today. It died on arrival, as it should have. But surprisingly enough, given the dubious way it began, a Paulson-like framework is a good place to start. It was influenced by what is known in regulatory circles as the Twin Peaks approach, used in Australia and the Netherlands. The idea is to create two financial regulators that are given separate responsibilities not based on financial firms’ lines of business. Currently, we have separate regulators for securities, futures, banks, and insurance. That antediluvian division of labor needs to be scrapped. Under a Twin Peaks structure, one agency would focus on the safety and soundness of financial institutions: the strength of their balance sheets, whom they trade with, and how strong their risk controls are. An agency with this structure would remedy one of the glaring limitations of the S.E.C.—that it has too many lawyers and too few market experts. The second peak will be more familiar. It would focus on business conduct and investor protection, otherwise known as lying, cheating, inadequate disclosure, and manipulation. This would encompass much of what the S.E.C. is currently supposed to be doing. It would go after big targets and not monkey around with dinky companies and small-time ­insider-trading issues. The Twin Peaks model has good-cop, bad-cop appeal. The safety-and-soundness regulator can work with firms to make sure they are solid or else the enforcer will come in. And we should consider a third peak as well: one with responsibility for surveying systemic risk. It would monitor the safety and soundness of the entire financial system, rather than assess it on a company-by-company basis. One debate—sometimes drawn as a Europe-vs.-U.S. argument—is about whether we should reorder regulation based on broad “principles” rather than strict “rules.” This is a red herring, despite the energy expended on it. Rules come from principles, after all. Whatever we have, it needs to be enforced.  In remaking the regulatory architecture, we will need to update the regulatory mandate to deal with 21st-century financial products. Accounting rules should be tightened to prevent anything from being moved off the balance sheet unless there is a true sale of the assets. No entity or instrument should be untouched by some form of regulation. Regulators need to monitor positions taken by banks, other financial institutions, and major investors, including hedge funds. To its credit, the S.E.C. did attempt in recent years a modest hedge fund registration requirement. The courts struck it down. Congress will have to expand the regulatory mandate to include private investment partnerships, or at least those of a certain size. Clearly, the regulators will need new powers. We must install higher capital requirements for all financial institutions. Given the disastrous incompetence of the rating agencies, Congress will have to undertake the enormous task of decoupling our regulatory framework from its dependence on ratings. Right now, ratings are written into the fabric of thousands of laws and regulations. Instead, market prices should be used. There is wide consensus, as there should be, that derivatives will be brought under the umbrella. In the 1990s, the definitive fight was over the regulation of derivatives. Brooksley Born, then the head of the C.F.T.C., pushed to regulate them. Alan Greenspan, Robert Rubin, and Lawrence Summers fought her. She was right. It’s encouraging that people like former S.E.C. commissioner Levitt, who sided with the crowd that argued that regulation would plunge the market into legal chaos, are now having second thoughts. Let’s hope the same is true for Summers, who is now in Obama’s inner circle. “I have regrets that I didn’t use that as an opportunity to say, ‘Wait a second, maybe it will create uncertainty, but what about going forward? And what about mandating a clearinghouse?’ ” Levitt says. “I could have and should have, and I regret not doing it.” Other problems are thornier. Can we do something about outrageous compensation for executives and Wall Street? Can we prevent institutions from becoming too big to fail or, worse, too interconnected to fail? Right now, unfortunately, regulators are encouraging mergers, giving us a land of one-eyed institutions buying blind ones. They have to be followed by a complete re-thinking of our capital requirements. Stronger capital requirements might help with excessive bonuses too. They will make financial firms more stable, less profitable, and therefore more parsimonious with their own employees in order to leave more for shareholders. But a revitalized regulatory sector won’t be enough. We need more dissidents. We need to make the world a safer place for short-sellers to criticize companies. Regulators should publicly praise short-sellers, rather than periodically ban their activities. Critics and whistle­blowers, no matter how self-motivated, should be regularly consulted about suspicious companies, not dismissed as cranks once they expose wrongdoing. And then we need to bring back plaintiffs’ lawyers. In the past decade and a half, Republicans not only weakened regulation but also led an attack on these lawyers. Corporate America hated them—and why not? They seem like parasites, ready to pounce on every corporate mistake. But they are vital to keeping capital markets functioning because they keep boardrooms scared. Frank Partnoy, a University of San Diego law professor and prescient critic of the fragile financial markets, says that “it’s crucial that standards not stand alone and they be enforced with real teeth. We need public enforcement and private litigation.” The current catastrophe presents us with an opportunity. But the Obama administration and a Barney Frank-led congressional effort have to be aggressive and ambitious. Reforms can always be scaled back if they overshoot the mark. But the reform-minded cannot enter the debate in a defensive crouch. As new chief of staff Rahm Emanuel says, Don’t let a crisis go to waste. Related LinksSign of a Bottom?The Man Who Made Too MuchThe Shears are Out

With the inauguration of President Barack Obama, you might be forgiven for thinking that the campaign is over. But in Washington, a barrage of political ads still crowd the airwaves. One, sponsored by a conservative outfit named Americans for Job Security, features grainy and menacing footage of leading Democrats like Nancy Pelosi and Chuck Schumer. A narrator intones, “Democratic leaders want to deny workers the right to a secret ballot in union-organizing elections. Maybe it’s a payoff to the union bosses.” Another, sponsored by American Rights at Work, a pro-labor group, shows a surprised office worker meeting with his supervisor, who gleefully informs him, “We’re giving you health benefits, a pension, and a nice big raise.” Alas, the worker wakes up. “If you think this is going to happen by itself, you’re dreaming,” the narrator says. The ads set the stage for what will most likely be the first major confrontation between the Obama administration and business—and it could get ugly. At stake is the Employee Free Choice Act, which would make it much easier for unions to organize. The bill is a top priority of the labor movement, and since labor helped get Obama elected, it expects the bill to become a top priority for him too. Obama has been cheered by many in the business community for appointing moderates like Tim Geithner to Treasury and Larry Summers to the National Economic Council. The new president, notably, hasn’t brought many labor-affiliated economists and activists onto his economic team. But what is about to play out in Washington will no doubt be an early reminder that despite Obama’s good intentions and promises of a kumbaya era of coming together, he won’t be able to sidestep the classic conflict between business and labor. The U.S. Chamber of Commerce is calling the coming war over the bill “Armageddon.” Such corporate titans as former General Electric head Jack Welch, outgoing Wal-Mart C.E.O. Lee Scott, and Home Depot co-founder Bernie Marcus are denouncing it. At the World Business Forum, Welch was apoplectic: “If business leaders are not aware of this terrible piece of legislation, they should be. It would hurt us dramatically in our ability to be competitive globally.” Political veteran Mark McKinnon, a former media adviser to George W. Bush, says he’s “never seen business this fired up.”On the other side, Andy Stern, president of the Service Employees International Union, tells me the legislation “is essential for workers to be able to share in the wealth of their employers.” Stern matters, and he will continue to matter during the Obama administration. With 2 million members, the S.E.I.U. is the largest and fastest-growing union in North America, and its endorsement of Obama gave the first-term senator’s campaign a big lift during the Democratic primaries in 2008. There is no question that Obama favors the bill; he was one of its many co-sponsors in the Senate. But now he has to make a choice. If Obama wants the law, he can get it passed, but he’ll have to fight for it—and spend valuable political capital early in his term—when he has other priorities, like pushing health-care reform, clean-energy efforts, and an economic-stimulus measure. In 2007, the E.F.C.A. was passed by the House but was filibustered in the Senate and did not pass. This time, though Democrats enjoy a larger majority in the Senate, some in the caucus—especially new senators from conservative states, like Mark Begich of Alaska—might not stand up against a Republican filibuster. Transition officials were divided on how aggressively and quickly Obama should move on the bill, but sources close to the campaign tell me he will push ahead. I’ve often been a critic of unions, but on this issue, I support them and think Obama is right to move forward. The central argument in favor of the bill is that it puts workers on a more level playing field when it comes to organizing unions. Right now, under federal law, a union can be certified to represent workers in two ways. The first is if a majority of workers sign cards saying they favor joining a union. The second is if, in a secret-ballot election, a majority of workers vote to organize. Under current law, an employer can demand a secret-ballot election even if a majority of workers sign cards. Under the E.F.C.A.—also known as “card-check” legislation—employers wouldn’t be able to demand an election. They would have to recognize the union after the cards were signed. Thus, the bill would take the choice out of management’s hands and give it to the workers. If workers wanted a secret-ballot election, they could have one. If they wanted to just go with card check, they could do that. Passing the card-check bill will surely help unions be certified more easily. But boosting union membership won’t be a slam dunk. Corporations, which have had the upper hand in keeping unions out of their shops, will still have many tools at their disposal to thwart them. They can hold meetings on company time advising against union membership and launch full-scale campaigns to prevent workers from joining.If card check becomes law, it won’t restore unions to their glory days—today only 7.5 percent of workers in the private sector belong to unions, less than half the number 25 years ago—but it might arrest the decline, which isn’t bad for business in the long run. No less of an authority than Ben Bernanke has said that the drop in union membership explains a good 10 to 20 percent of the increase in income inequality in the United States. If businesses want people to be able to afford their products, union membership itself serves as an economic-stimulus package—a surefire way to put more money into workers’ pockets.In the end, no one knows what the exact effects of card check would be. Union membership would surely rise, but the economic dislocation could be minimal. Most of the job losses in the United States fall disproportionately in industries with unions. If the bill becomes law, it will certainly lead to a flurry of organizing, but it won’t be easy for labor to hold on to even its meager 7.5 percent of jobs.God knows it’s easy to bash unions. The American auto industry is on its knees in no small part because of legacy costs brought on by the demands of the United Auto Workers, which agreed in December to a package of givebacks. But being anti-union is as boneheaded as being anti-corporation—a knee-jerk reaction when nuance is required. After all, unions are found not only in dying industries but in growth industries like aerospace, energy, and entertainment. Private equity giants, already struggling during the economic crisis, will face further challenges should the E.F.C.A. pass. When private equity firms bought such businesses as Toys R Us, Hilton Hotels, Dunkin’ Donuts, and Hertz, they surely didn’t plan on having to face substantial unionization drives, but shortsightedness has been in no short supply in boardrooms around the country. While the Private Equity Council, the Washington lobby for the big private equity firms, hasn’t taken a position on the E.F.C.A., individual members have. The Carlyle Group has been in a big fight with the S.E.I.U., which is trying to organize workers at HCR ManorCare, a company with nearly 60,000 employees in 32 states running more than 500 long-term-care facilities. Carlyle closed its $6.3 billion purchase of the company in December after overcoming concerns from regulators and efforts by the S.E.I.U. to delay the sale. There’s no reason workers should have to get the short end of the stick just to save the private equity guys from being inconvenienced.The legislation doesn’t apply to small businesses, so the corner grocery probably won’t face an organizing drive. And as for larger companies, it’s worth noting that many corporations have chosen not to fight card check and have honored union expansion without calling for elections, which are often bitterly fought. These include Harley-Davidson, Aetna, and AT&T. Some Republicans have recognized this. Indeed, a Republican, George Pataki of New York, became the first governor of either party to sign a card-check bill, hailing it later as “an important step toward eliminating unnecessary hurdles while also ensuring fairness.’’ Sounds right to me. Related LinksFinally, Drama! A Geithner vs. Bair Clash?Ben Stein Watch: November 30, 2008Obama's Economic Team

Sales of Amazon’s Kindle shot up during the holidays, encouraging the makers of other e-readers to believe that the market will grow if they keep pushing the right technology. One firm that’s trying is Plastic Logic, an upstart with $200 million in funding from Intel, Siemens, and others. Betting that lightweight plastic is the answer, the Mountain View, California, company is developing a reader that will curl like a piece of paper and to which books, periodicals, and office documents can be downloaded via WiFi. A prototype of the fully flexible reader is still a few years away. In the meantime, Plastic Logic’s first model—a rigid one—will be out this spring. (View an interactive feature about gadgets that have failed to to sell well). Related LinksLast Bytes: Next Up, CESFirst Bytes: Intel, Accel Partners, CBS, Tumblr, YouTubeReally Late Breaks: A Bad Day for Media

You didn’t have much shelf life as a studio executive. You’ve been criticized for putting only two movies (Lions for Lambs and Valkyrie) into production at U.A. How do you respond? Look, I don’t pay any attention to critics. I know who I am. I know what I did. Those 18 months at U.A. were about putting together a management team, building an infrastructure, securing financing, creating a label, and creating a development slate with top talent. I’m really proud of that. You still own a piece of U.A. Will you and Tom Cruise collaborate in the future? Absolutely. We are talking about four or five pictures together. How are Wall Street’s troubles affecting Hollywood? Fewer movies will be made. And I think that’s good. Every single ­weekend, movies are cannibalizing themselves. We’re in an era now where less is more. Make fewer movies. Make them better. If fewer movies are going to be made, you’ll be affected too. Will you be forced to change course? I have been strictly in the movie business, but now I’m looking at crossover. The industry needs brands. I’m looking at theater. I have things I’m not ready to announce. You were the third female talent agent at Creative Artists Agency and the second to have a child. What pressures did you face? A woman had to be far better. When I got pregnant, I didn’t tell anyone until five months in. I worked until 7 p.m. on a Friday, went into labor on Saturday, and had a C-section on Sunday. On Monday morning, I was making a deal from the hospital bed. What else have you been up to since you left U.A.? I read medical books as a hobby. I love the New ­England Journal of Medicine. If I start to get stressed, I pick up a ­medical book and I feel a lot better. Really? Why? I’m always analyzing cause and effect. And I’m fascinated by lon­gevity. Somebody said to me, if you can make it through the next 20 years, you can live to 120. Looking back, were you surprised when you heard that Viacom’s Sumner Redstone fired Cruise in 2006? I don’t look in the rearview mirror, except to adjust my makeup. That’s a joke!  Related LinksSuddenly, Death Race Must Outrun A LawsuitTom Cruise/UA Secures Its $500 Million In FundsSalaam, Hollywood!

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