Finance & Business World

Faced with uncertain winds in U.S. defense spending, Boeing’s Hazelwood-based defense unit is venturing into far less traditional markets like the power grid and cybersecurity.

The aerospace company will continue to build fighter jets and other military aircraft. Boeing learned in May that it had secured another multi-year order of locally built F/A-18 fighter jets.

But earlier this year, Defense Secretary Robert Gates said he would urge President Barack Obama to veto any legislation that continues production of the "unnecessary" C-17 Globemaster transport plane. Last year, the Pentagon scaled back Army modernization and missile-defense programs in which Boeing was a major player.

"We absolutely want to stay in those platform businesses if you want to call it that," said Chris Raymond, Boeing Defense, Space & Security’s vice president of business development. "We want to stay in the rotorcraft, airborne battle management, fighters and strike. Those are obviously core business for us. We are always trying to extend that and refresh the products in that."

But the nation’s second-largest military contractor also wants to "diversify and expand" into other realms that include energy and cybersecurity, he said.

Last fall, Boeing won an $8.6 million grant from the U.S. Department of Energy to help develop an advanced "smart grid" prototype for optimizing regional power transmission. Boeing also was subrecipient on two other Department of Energy grants with partners Consolidated Edison of New York and Southern California Edison.

In all, the Department of Energy awarded $620 million in federal stimulus to 32 demonstration projects aimed at modernizing and fortifying the nation’s electrical grid.

Boeing Chairman Jim McNerney told shareholders last month that while the company plans to "maintain a large and stable business" providing programs and services to the U.S. military, the defense contractor also is actively pursuing other opportunities for growth.

In January, Boeing formally changed the name of its defense unit from Integrated Defense Systems to Boeing Defense, Space & Security. The move was part of a realignment aimed at capturing business in adjacent markets within the United States and abroad, officials said.

Boeing and other defense contractors are making a push into the emerging homeland security market as well.

Raymond said the line is going to blur between classic defense and homeland security functions.

"I think you’ll see the big defense companies kind of morphing to defense and security, or global security," he said . "And that covers more than just what we’ve thought of as defense."

Last month, for instance, a Lockheed Martin-led team began development of a Next Generation Identification system capability to help law enforcement agencies better search the FBI database of wanted criminals and terror suspects. Lockheed Martin has opened a NexGen Cyber Innovation and Technology Center in Gaithersburg, Md.

In addition to energy and cybersecurity, those markets include intelligence and logistics, company officials said.

Philip Finnegan, director of corporate analysis at Teal Group, said Boeing and Lockheed reflect a trend among defense contractors that are focusing on adjacencies. It makes all the more sense with defense budgets reaching a plateau, he added.

"This fits within an overall drive we have seen in Boeing to really work to broaden itself beyond its defense core," Finnegan said.

James Carafano, a military and homeland security expert at the Heritage Foundation, said Boeing’s moves also reflect a realistic response to the cyclical nature of U.S. defense spending. But it also reflects the expertise the company has developed managing sophisticated manufacturing efforts with far-flung supply chains.

"When you put together a modern airplane, it is an incredibly large, complex system," Carafano said. "I think Boeing thinks it is in the business of systems integration, and systems integration is something that cuts across a lot of sectors."

Raymond agreed.

"We always want to be a large-scale systems integrator," he said. "That is one of our core DNA."

Boeing’s capabilities to handle complex systems engineering jobs and to manage complex supply chains, he said, are largely why the company was awarded such major contracts as the Future Combat Systems, missile defense and the country’s secure border initiative.

Nonetheless, Future Combat Systems — a major Army modernization effort — was another major Boeing contract that was scaled back. Last June, the Pentagon ordered a major restructuring of the $160 billion Future Combat Systems program to a series of acquisition programs extending high-tech battlefield equipment to all combat brigades.

Boeing was the lead contractor for the modernization program along with Science Applications International Corp. of San Diego.

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Chrysler Group is recalling about 285,000 model year 2008 and 2009 Dodge Caravan and Chrysler Town & Country cars in the U.S. because of possible fire hazards.

The National Highway Safety Administration said some of the vehicles, manufactured between February and September 2007, may have been built with "an improperly routed wire harness" that could short circuit and ultimately cause a fire.

"The company is not aware of any accidents or injuries related to this issue," said a company spokesman in a statement. Chrysler said it was conducting a voluntary safety recall for the vehicles "to inspect the sliding-door wire-track assembly for damage and repair or replace as necessary."

The recall marks the second one for Chrysler this month. Last week, the automaker recalled about 25,000 Dodge Caliber and Jeep Compass cars in the U.S. because of a problem that causes the gas pedals to stick. An additional 10,000 cars were being recalled in other countries.

Earlier this year, the automaker recalled more than 300,000 model year 2005-2006 Dodge Caravan, Grand Caravan and Chrysler Town & Country vehicles over front crash sensors that could cause air bag malfunctions during a crash. That recall pertained to vehicles in 29 states and the District of Columbia.

Chrysler will notify owners of vehicles affected by the recall. Dealers will inspect and, if needed, fix the vehicles for free. Owners who think their car may be involved can call Chrysler at 1-800-853-1403 or NHTSA at 1-888-327-4236. 

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Morgan Stanley said it swung to a $1.8 billion profit in the first quarter Wednesday, as strong trading revenues boosted the Wall Street firm’s latest results.

The New York City-based investment bank said it earned $1.03 a share during the quarter. Including earnings from discontinued operations, Morgan Stanley posted a profit of $1.4 billion, or 99 cents a share during the quarter. A year ago, Morgan Stanley lost $578 million, or 57 cents a share on that basis.

The results were far better than what analysts were anticipating. Expectations were for the company to report a profit — including discontinued operations — of $938 million, or 57 cents a share, according to Thomson Reuters.

Morgan Stanley CEO James Gorman, who succeeded current chairman John Mack as CEO at the start of the year, praised the firm’s efforts, particularly that of its growing sales and trading division.

Revenue from the company’s debt and currency trading business in particular, more than doubled from a year ago to $2.7 billion in the quarter.

Profits were higher across all three of the company’s divisions — its securities business, long-suffering asset management unit and wealth management division.

The latter unit grew dramatically after announcing plans last year to merge with Citigroup’s Smith Barney business. Client assets grew, while expenses showed signs of moderating from the previous quarter.

"This may be the beginning of the savings that were first promised when it integrated with Citi’s business," said Brad Hintz, senior analyst at Bernstein Research.

Ruth Porat, Morgan Stanley’s chief financial officer, attributed at least part of the company’s results to improvement in the economy, but echoed comments by Gorman, saying the firm still had "more work to do."

Morgan’s investment advisory business has been sluggish as of late due to weakened dealmaking activity. At the same time, real estate funds operated by the company have endured a series of bruising losses on commercial loans recently.

Morgan Stanley’s results however, may signal the firm’s return to consistent profitability. Last year’s performance was uneven, with the company reporting a net loss of $907 million for fiscal year 2009.

All of the nation’s top banks have come roaring back in the latest quarter, not only turning a profit, but also blowing analysts’ estimates out of the water.

Citigroup (C, Fortune 500), which was among the hardest hit banks during the credit crisis, reported a first-quarter profit of $4.4 billion earlier this week, while California-based lender Wells Fargo (WFC, Fortune 500) also scored Wednesday as it reported a first-quarter profit of $2.5 billion. Both banks beat Wall Street’s earnings estimates.

Goldman Sachs (GS, Fortune 500) also recorded an impressive $3.5 billion in profits Tuesday, even as its results were overshadowed by the SEC’s fraud case against the investment bank.

Porat disclosed to analysts Wednesday that Morgan Stanley was not facing any potential federal legal action related to mortgage securities it helped create.

Morgan Stanley (MS, Fortune 500) shares rose nearly 6% in afternoon trading on the news.  

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Exxon Mobil outlined plans Thursday that rely heavily on oil from tough to reach places, extracting it from the depths of the ocean, the frozen Arctic and the tar sands in Canada’s frozen tundra.

But oil pumped in these places tends to be much more expensive than oil from more conventional sources.

In a presentation to analysts at the New York Stock Exchange, executives from the world’s largest publicly traded oil company highlighted eight projects that started up in 2009. Three of them are what most would consider unconventional: A liquefied natural gas terminal off the Italian coast, a liquefied natural gas terminal off the English coast, and a shale natural gas facility in Colorado.

Of the eight major projects the company plans to start up in the near future, six were unconventional. They include two liquefied natural gas facilities, in Qatar and Texas, an Arctic oil production facility in Sakhalin Island off Russia’s far east coast, two deep water projects off Angola, and an oil sands project in Alberta, Canada.

In fact, some three-quarters of the company’s oil reserves are in these more expensive production areas.

What is unconventional?

Exxon boss Rex Tillerson said what’s considered conventional and unconventional is a matter of opinion, and that the company only considers 10% of its reserves to be truly unconventional. But Tillerson said the move to more unconventional sources is happening.

"We anticipate it will grow in the future, and we hope it will grow with the positions we’ve taken," he said.

But Exxon isn’t alone. Easily accessible oil is becoming harder to find, and nations that have it are demanding a bigger cut of the profits. The entire industry is confronted with drilling for more expensive oil. It’s one of the main reasons why most analysts don’t expect oil prices to return to the $20-range of the late 1990s.

Liquefied natural gas is harder to bring to market than regular gas. First the gas must be converted to liquid to transport it from its source in remote areas to where it can be used, generally close to major population centers. Then it must be converted back into a gas for usage.

Oil sands are a heavy, tar-like substance that requires lots of processing to turn into a usable oil. Shale gas lies in rock that must be cracked with chemicals and water to bring it to the surface. Projects in deep water or the Arctic require expensive infrastructure to reach the oil.

This all raises the cost. It’s thought that oil in Saudi Arabia, which is relatively easy to produce, can be pumped for as little as $5 a barrel. Costs vary greatly for unconventional projects, but can be $40 a barrel or higher.

What about gasoline prices?

When it comes to gasoline prices, Tillerson said he doesn’t expect to see much of an increase this summer, mainly due to lack of demand.

"Given the state of the economy, my guess is people aren’t feeling a whole lot better about this year’s vacation than they were last year," he said. "If there is any uptick, I’d expect it to be very modest."

On Iraq, he said the security situation seems to be improving and was hopeful Exxon can fulfill its commitment to develop a key Iraqi oil field in the coming years.

Exxon was one of several companies to recently win oil contracts in Iraq. The government there hopes the country can eventually produce as much oil as Saudi Arabia.

"They’ve been more enthusiastic about our joint work than we anticipated," said Tillerson, referring to the Exxon’s partnership with Iraq’s national oil company. "We feel reasonably positive about moving forward."

While Exxon (XOM, Fortune 500) is bullish about using natural gas to make electricity, Tillerson did not hold out much hope for using the fuel to power cars and trucks, as some in Congress, along with oilman T. Bone Pickens, have suggested.

He said natural gas is not a dense enough fuel to use in most cars and trucks, would require significant investments in infrastructure to distribute, and that it would take more time to fill up each vehicle.

"I can’t make the math work on why anybody would do that," he said. 

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JEFFERSON CITY — Missouri officials say they can’t prevent a tax dodge used by some wealthy investors in the state-sponsored college savings plan.

So instead of trying to police it, officials want to legalize it.

At issue is how long money invested in the Missouri Saving for Tuition program — MOST for short — must stay in an account to earn a state tax deduction.

Missouri set up the program a decade ago to give working families a low-cost way to save for college. Accounts can be opened directly through the state for as little as $25.

Investors pay no federal or state taxes on profits when they withdraw money to pay for college. The program is known as a 529 plan, after the section of federal law that authorized such plans in 1996 and spurred their growth.

MOST has attracted 123,000 accounts holding $1.3 billion in investments.

Like most states, Missouri sweetened the deal by adding a state tax deduction. Families can shield up to $16,000 a year in contributions from Missouri income taxes.

That money is supposed to stay put at least 12 months to be eligible for the tax break. Sen. Delbert Scott, R-Lowry City, sponsored the restriction in 2006.

"I found out that there were people who would deposit the money the last day of December, use it to pay tuition the first day of January, and take the tax deduction," Scott said.

For example, a parent who routed $8,000 through a MOST account at year’s end could save about $480 by avoiding the state’s 6 percent income tax. A married couple taking the maximum deduction could save twice that, or $960.

Scott said that wasn’t the Legislature’s intent.

"This was set up to be a savings account rather than an automatic tax deduction for those who can pay cash as they go," he said.

But the restriction has never been enforced.

"Some people would view it as a loophole," said Joe Hurley, founder of savingforcollege.com, a respected website that rates all 529 plans. "But just about every state that has a deduction has no minimum holding period, so it’s a loophole in pretty much every state."

State Treasurer Clint Zweifel, whose office oversees the MOST program, said it would cost MOST $360,000 to set up a tracking system to make sure accounts didn’t violate the 12-month rule. That oversight could discourage investors, he said.

"It’s creating an administrative burden and red tape that puts government as some sort of Big Brother, telling people how to save for college," Zweifel said.

"Who are we to tell them, when they make a contribution, whether it has to sit for 10 months or 22 months?"

Zweifel said few people used the loophole anyway.

He estimates that about 65 people used it last year to shield $219,000 in contributions. That analysis is based on the number of Missourians who opened new accounts in December 2008 and made a withdrawal in January 2009.

MOST attracted $198 million in investments in 2008, so "we’re talking about a tenth of a percent of contributions," Zweifel said.

Even Scott agrees. He now sponsors the bill repealing the rule he authored in 2006. Scott said a 2008 change in the MOST program made it counterproductive to enforce the restriction.

Missouri extended its deduction to college savings plans sponsored by other states. Most states don’t require money to be held a certain length of time, so Missourians could invest their money elsewhere and claim Missouri’s deduction.

"I think the ultimate message is, we want people to save for their kids’ college," Scott said. "This is just one of the incentives that comes along, if you’ve got the money to do it. It’s kind of an unintended consequence."

If the restriction isn’t repealed, the Missouri Department of Revenue plans to finally try to enforce it next year.

The agency added a note to its 2010 tax form instructions, warning taxpayers not to take the deduction for contributions and earnings withdrawn after less than 12 months.

Scott’s bill is SB772.

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India’s industrial production grew at the fastest pace in 25 months in November, strengthening the case for the central bank to raise interest rates in the first half of this year.

Output at factories, utilities and mines rose 11.7 percent from a year earlier after gaining 10.3 percent in October, the statistics agency said in New Delhi today. The gain exceeded the median estimate of 10 percent in a Bloomberg News survey of 25 economists.

The acceleration of India’s economy, Asia’s third-largest, parallels a rebound in China that may also see policy makers there boost borrowing costs in the coming months. India’s biggest stock-market advance in 18 years, along with fiscal and monetary measures, have stoked demand for cars made by Maruti Suzuki India Ltd. and plasma screens from LG Electronics Inc.

“The pace of growth is much stronger than anticipated and clearly indicates that consumption is in a self-propelling mode,” said Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai. “And with inflation surging, the probability of an increase in the cash reserve ratio in the central bank’s Jan. 29 policy statement is now very high.”

India’s bonds fell after the report. The yield on the 6.35 percent note due in January 2020 climbed to the highest level in almost two months, rising by five basis points to 7.71 percent as of 1:05 p.m. The Bombay Stock Exchange’s Sensitive Index declined 0.51 percent at 2:11 p.m., after rising 0.4 percent earlier, on concern a faster recovery will prompt the central bank to raise rates.

Stimulus Measures

Economies are recovering across Asia after the region’s policy makers unveiled about $1 trillion in stimulus measures and cut rates to spur growth. China’s industrial production rose 19.2 percent in November and its exports climbed 17.7 percent in December.

Recent data show growth is gaining traction in India as well, with manufacturing rising at the fastest pace in seven months in December, according to the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics. Exports surged to a 15-month high in December after rising 18.2 percent in November, the first increase in 14 months.

RBI Governor Duvvuri Subbarao “should begin monetary action by shrinking the excess liquidity in the local money markets and then move to increasing policy rates around March and April,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. The central bank “will be concerned about the excess liquidity and second-order inflationary effects of high food inflation.”

Food Prices

India’s benchmark wholesale-price inflation rate rose to 4.78 percent in November, more than three times October’s 1.34 percent. Wholesale food prices soared 18.22 percent in the week to Dec. 26 from a year earlier, near the most in 11 years. The government is next due to release food inflation data on Thursday.

“This release, together with the likelihood of a strong December inflation number on Thursday, seals India’s near-term interest rate fate,” said Robert Prior-Wandesforde, Singapore- based senior Asia economist at HSBC Holdings Plc. He expects the RBI to start increasing its key policy rates in April after raising lenders’ reserve requirements at this month’s meeting.

Subbarao slashed the cash reserve ratio by 400 basis points to 5 percent between October 2008 and January 2009 to shield the economy from the global recession. The central bank has left its reverse repurchase rate and repurchase rate unchanged since April, after respective cuts of 2.75 and 4.25 percentage points.

Fridges, TVs

By comparison, China’s one-year lending rate is at a five- year low of 5.31 percent and its one-year deposit rate is 2.25 percent.

Manufacturing output increased 12.7 percent in November from a year earlier, accelerating from an 11.1 percent gain in October, today’s report showed. Mining grew 10 percent, compared with 9 percent in the previous month and electricity rose 3.3 percent from 4.7 percent. Production of consumer durables such as refrigerators and televisions surged 37.3 percent in November, compared with a 20.2 percent gain.

Prime Minister Manmohan Singh last year cut taxes on consumer products, increased spending on roads and utilities, raised salaries for government workers and waived farm loans.

The central bank injected about $130 billion into India’s banking system by reducing interest rates and lowering lenders’ reserve requirements. That helped the $1.2 trillion economy to grow 7.9 percent in the three months ended Sept. 30, the most in 1 1/2 years.

Surpassing China

Faster growth has attracted overseas inflows into stocks, taking the Sensitive Index to the highest in 18 years in 2009. The rupee gained 4.8 percent.

India’s growth may quicken to 10 percent in a “couple of years,” exceeding that of China as early as 2014, Kaushik Basu, chief economic adviser to the South Asian nation’s finance ministry, said Jan. 4. The government has no plans to “suddenly” withdraw last year’s stimulus, he said.

The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other carmakers introduced 10 new models at the Delhi Auto show last week. Passenger car sales hit 1.43 million units in 2009, the most in three years, according to the Society of Indian Automobile Manufacturers on Jan. 8.

ArcelorMittal, the world’s biggest producer of steel, and Posco, the sixth-biggest maker of the alloy, plan to set up new steel mills in southern India. Posco will invest 323 billion rupees ($7 billion) on a mill in Karnataka state, the regional government said Jan. 7. ArcelorMittal plans to sign an accord in June for a 300 billion-rupee project in the same state.

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BAGHDAD–A consortium led by Russia's private oil giant Lukoil on Tuesday signed an initial deal with Iraq to develop one of its biggest oilfields, an agreement key to the war-ravaged nation's efforts to boost the output of a resource crucial to its postwar reconstruction efforts.

Lukoil had partnered with Norway's Statoil ASA to bid to develop the 12.88 billion barrel West Qurna Phase 2 field, the crown jewel of the 15 fields offered during Iraq's second postwar oil licensing round held earlier this month.

Under the 20-year deal which is slated to be presented Thursday to Iraq's Cabinet, the companies plan to produce 1.8 million barrels per day in 13 years and will be paid $1.15 (U.S.) per barrel of crude they produce from the southern field.

Lukoil's vice president of strategy and business development, Dmitry A. Timoshenko, hailed the signing as an important step forward in its work with the Iraqi government.

"Now we are waiting for the other legal procedures to be completed," Timoshenko said. "We hope that these procedures will be concluded soon so that we can start our work as soon as possible.''

For Iraq, the deal marks a crucial step forward in the country's sofar faltering bid to raise oil output.

Although it sits atop the world's third largest proven reserves of conventional crude oil, Iraq produces about 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.

Decades of neglect of the fields have been compounded by the effects of the fighting and sabotage in the wake of the 2003 U.S.-led war to oust Saddam. That violence has meant that Iraq has been unable to even reach its pre-war output levels of oil. Crude oil sales account for roughly 90 per cent of the government's budget.

The oil auction held earlier this month was crucial for Iraq, during which seven deals were awarded. At the first round of bidding in June, only one deals was signed on the spot.

At that auction, six oil and two gas fields were offered, but interest was only on the safest and cheapest fields to develop, with companies shrinking away from fields in restive regions where violence is a key concern as U.S. troops prepare to withdraw from Iraq. Two other deals were subsequently struck.

The second auction saw more deals done – a total of seven. But most of the interest was again focused on fields in the relatively calm and stable Shiite heartland in the south and the U.S. supermajors like Exxon Mobil failed to even bid, let alone win, any of the fields.

Oil Minister Hussain al-Shahristani ambitiously projected that with these fields, along with others Iraq will develop independently, output could climb to 12 million barrels per day within six years. Analysts say those expectations will fall far short of the reality.

Senior Deputy Oil Minister Abdul-Karim Elaibi said all the deals awarded during the second auction will be submitted to the Cabinet on Thursday for approval.

The deal was a coup for Lukoil, which had been granted the rights to develop the field in 1997 by Saddam Hussein only to see the dictator rescind the $3.7 billion contract five years later.

Lukoil had been trying to revive the deal since 2003 after Moscow wrote off most of Iraq's $12.9 billion in debts. Iraqi officials, however, eager to make sure that the reopening of the country's oil sector to the world was as transparent as possible, shrugged off the Russian calls and insisted on putting the field up for bids.

Lukoil and Statoil beat out three other consortiums led by Britain's BP PLC, France's Total SA and Malaysia's state-run Petronas to nab the rights to develop the mammoth field. Although discovered in August 1973, it has been only partially developed, with a total of 13 wells drilled, so far.

The field lies next to the West Qurna Phase 1 field, which has 8.6 billion-barrel and was part of three deals awarded in Iraq's first bidding round.

A consortium grouping U.S. and European oil giants Exxon Mobil and Royal Dutch Shell PLC won the rights to develop West Qurna Phase 1 field for $1.9 per barrel produced and signed an initial deal. It also still waiting the Cabinet's final approval.

Four other deals emerging from the second auction were initialed last week. Those included fields won by consortiums led by European giant Royal Dutch Shell PLC, Petronas, China's CNPC and Russia's Gazprom.

The last two deals – with Angola's Sonangol – will be initialed Wednesday.

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The Obama administration’s pay czar is imposing tough cuts on 175 big earners — but many on Wall Street are still on track for a banner payday.

Kenneth Feinberg, appointed the Treasury’s special master for compensation in June, has ultimate say over compensation for the top paid employees at the 7 most bailed-out companies: AIG (AIG, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), General Motors, Chrysler, GMAC and Chrysler Financial.

In a policy announced Thursday, Feinberg demanded salary cuts of up to 90%, and total reductions — including stock and options — of 50%.

But Feinberg’s ruling does not impact other financial firms that are on track to pay out record bonuses, like Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).

Revenue projections for those firms keep rising, and analysts say bonuses will be back on track for another record year following a one-year dive in 2008. Goldman Sachs said last week that it set aside $16.7 billion for salaries, employee stock options and bonuses, which works out to about $526,814 per employee.

"The whole bailout situation has raised a lot of questions about fairness," said Eleanor Bloxham, chief executive of The Value Alliance and Corporate Governance Alliance. "It’s important to have similar rules for everyone, especially as we get into the broader issue of oversight."

Bloxham said compensation is a concern at every financial institution. Executives who are paid in large dollar amounts regardless of company performance could be inclined to make riskier bets.

The more than 600 companies that have received capital investments from the $700 billion bailout are subject to executive compensation curbs, including limits on perks and golden parachutes.

No bailout, no pay regulation … yet. Companies like Goldman and JPMorgan, which have paid the government back the billions of dollars in bailout funds they received from taxpayers, are no longer under the scrutiny of Treasury.

For those companies and others that never received TARP funds, lawmakers are examining other ways of regulating executive pay. A "Say on Pay" bill that would give shareholders the ability to issue a non-binding statement on executive compensation passed a House vote in August and is likely to land on President Obama’s desk in the coming months.

Financial firms have largely agreed executive compensation needs to be more closely aligned with performance, but almost all have said that they can handle the issue themselves.

"From my view, I’m a capitalist, I think it should be left to us," John Mack, chief executive of Morgan Stanley, told CNNMoney last week.

Others argue regulators need to have an even heavier hand in companies’ executive compensation decisions, especially since the government has played an important role in the success of those companies.

Even financial firms that have paid their TARP loans back are still benefiting from the bailout, as many of their counterparties are are able to do business with them thanks in large part to taxpayers’ capital investments.

"From a TARP perspective they paid their money back," bailout overseer Neil Barofsky told CNN on Wednesday. "I think there’s a frustration that they’re the beneficiaries of other government programs that have let these companies rely on cheap profits."

In a report released Wednesday, Barofsky said that market behavior and performance has been positively impacted by the massive infusions of government capital. As a result, banks are getting healthier, financial stocks are soaring, and bonuses are expected to hit a record in 2009.

Bloxham, for one, believes the government should have a role in restricting wildly out-of-whack pay packages. She suggests the SEC and the Fed should draft enforceable guidelines for executive compensation at companies that ensure businesses are not engaging in practices that could bring the whole financial system down.

Why only seven. The official reason is that the Treasury Department gave Feinberg the power to regulate pay at any of the companies that have received "extraordinary assistance" beyond the more than 600 firms that have gotten capital investments from taxpayers.

To be sure, those companies are a good start. AIG is probably the most reviled company in the world. Bank of America is under investigation for lying to its shareholders about bonuses. Once mighty Citigroup is in the process of splitting its business in two. And the automakers went through very public bankruptcies.

Some experts believe that the government is trying to make an example of these seven firms, hoping that others will fall in line.

"The government is trying to use these guys as examples for what other companies should do," said Ken Raskin head the executive compensation practice at White & Case. "Every layman has heard about these companies and most want to see government action on them."

"But to do the same for another 100 companies would be, perhaps, an insurmountable task," he added.

Raskin believes that Feinberg’s authority should end with the seven top banks, as the government would otherwise be perceived as overstepping its bounds, especially for companies that are not TARP recipients.  

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Australia’s central bank may leave interest rates unchanged today for a sixth month and signal plans to increase borrowing costs as early as next month amid signs the economy is strengthening.

Reserve Bank Governor Glenn Stevens will keep the overnight cash rate target at 3 percent at 2:30 p.m. in Sydney, according to 19 of 20 economists surveyed by Bloomberg News. One expects a quarter percentage point increase.

The benchmark rate will have to be raised from its current “unusually low level at some point” as private demand increases, Stevens said last week. The local currency’s surge to a 13-month high and forecasts by analysts for an increase in unemployment may prompt Stevens to delay an increase this month.

“Board members are still uncertain about the sustainability of the global recovery,” said Stephen Roberts, an economist at Nomura Australia Ltd. in Sydney. Low inflation also “provides the Reserve Bank with the luxury to normalize interest rates slowly, even as the economy exhibits modest growth.”

Speculation that Stevens will move faster than policy makers in the U.S., Europe and Japan to raise borrowing costs has helped stoke a 25 percent gain in the nation’s currency this year, curbing earnings by exporters including BHP Billiton Ltd.

Investors have a 100 percent expectation Stevens will raise the overnight cash rate target by a quarter percentage point in November, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. They also tipped a 40 percent chance of an increase today, the index showed at 10:36 a.m.

‘Good Episode’

Governor Stevens, who cut the benchmark lending rate by a record 4.25 percentage points between September 2008 and April to cushion the economy against fallout from the global credit squeeze, said on Sept. 28 that compared with past recessions, “this has been a good episode for Australia.”

“In due course, both fiscal and monetary support will need to be unwound as private demand increases,” Stevens told a Senate committee in Sydney.

Reports published last week showed retail sales, approvals to build private homes, bank mortgage lending and property prices all jumped in August, adding to signs the economy will strengthen this quarter.

Advertisements for job vacancies rose in September for a second straight month, gaining 4.4 percent from August, according to an Australia & New Zealand Banking Group Ltd. report released in Melbourne yesterday.

Unemployment Rising

Still, a report due Oct. 8 will show the unemployment rate rose to 6 percent last month from 5.8 percent as employers cut 10,000 jobs, according to the median estimate of 20 economists surveyed by Bloomberg.

Consumer spending, stoked by A$20 billion ($17.6 billion) in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s gross domestic product in the first half of this year.

The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools.

There are increasing signs the stimulus is starting to drive up asset prices. The nation’s benchmark S&P/ASX 200 index of stocks has surged more than 20 percent this year, and a report published Sept. 30 by property monitoring company RP Data-Rismark showed house prices climbed 7.9 percent in the first eight months of this year.

Economic Growth

“We are in a situation where we would not want to see very strong growth in housing prices — that would be unhelpful from a social perspective,” Anthony Richards, the head of the central bank’s economics department, said on Sept. 29, adding that it’s “not reasonable to expect that interest rates will stay at the current low levels indefinitely.”

The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

While an increase in the benchmark rate today is possible, a “hike in November is a better bet,” said Spiros Papadopoulos, a senior economist at National Australia Bank Ltd. in Melbourne.

“By then, we will have the September-quarter consumer price index, and another full round of key monthly indicators to shore up the central bank board’s view that the economy is on a sustained recovery path,” he said.

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Loans to households and companies in Europe grew at the slowest pace on record in August as the economy struggled to shake off its worst recession since World War II.

Loans to the private sector rose 0.1 percent from a year earlier, the slowest growth since records began in 1991, after increasing an annual 0.7 percent in July, the European Central Bank said today. On the month, loans fell 0.1 percent. M3 money- supply growth, which the ECB uses as a gauge of future inflation, slowed to 2.5 percent in August from 3 percent in July.

The global recession has made banks reluctant to lend and also eroded demand for debt. While the economy of the 16 nations sharing the euro may resume expansion in the current quarter, growth is likely to remain muted unless credit flows improve and companies and households increase spending. The ECB has cut its benchmark interest rate to a record low of 1 percent and is flooding banks with cash in an effort to revive lending.

“Today’s data justifies the ECB’s extremely cautious stance once again,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The risk of a credit crunch has not disappeared even with the economy recovering, quite the contrary. With the new stronger regulation coming out of the G- 20, banks will be even more careful about lending.”

Capital Requirements

President Barack Obama and other Group of 20 leaders meeting in Pittsburgh today are uniting behind a plan to force banks to tie compensation more closely to risk and tighten capital requirements, U.S. officials said.

The German and French economies unexpectedly expanded in the second quarter and Europe’s manufacturing and service industries grew for a second month in September.

M1, which captures the most liquid form of money in the economy such as cash and overnight deposits, grew 13.6 percent in August from a year earlier, the ECB said, up from an annual increase of 12.1 percent in July. Accelerating M1 growth indicates more money is available for spending and investment which, when enacted, spurs economic growth.

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