AIG's new swaps expanded Wall St. risk

For months, several executives at AIG Financial Products had pulled apart the data, looking for flaws in the logic. In phone calls and e-mails, at meetings and on their trading floor, they kept asking themselves in early 1998: Could this be right? What are we missing?

Their debate centered on a consultant's computer model and a new kind of contract known as a credit-default swap. For a fee, the firm essentially would insure a company's corporate debt in case of default. The model showed that these swaps could be a moneymaker for the decade-old firm and its parent company, insurance giant AIG, with a 99.85 percent chance of never having to pay out.

The computer model was based on years of historical data about the ups and downs of corporate debt, essentially the bonds that corporations sell to finance their operations. As AIG's top executives and Tom Savage, the 48-year-old Financial Products president, understood the model's projections, the U.S. economy would have to disintegrate into a full-blown depression to trigger the succession of events that would require Financial Products to cover defaults.

If that happened, the holders of swaps would almost certainly be wiped out, so how could they even collect? Financial Products would receive millions of dollars in fees for taking on infinitesimal risk.

The firm's chief operating officer, Joseph Cassano, had studied the model and urged Savage to give the swaps a green light. "The models suggested that the risk was so remote that the fees were almost free money," Savage said in a recent interview. "Just put it on your books and enjoy the money."

Initially, the credit-default swaps business would amount to a fraction of the half-billion dollars in Financial Products' revenue that year. It didn't seem to them like a major decision, and certainly not a turning point.

They were wrong.

The firm's entry into credit-default swaps would evolve into insuring more volatile forms of debt, including the mortgage-backed securities that helped fuel the real estate boom now gone bust. It would expose AIG to more than $500 billion in liabilities and entangle dozens of financial institutions on Wall Street and around the world.

When the housing market tanked, a statistically improbable chain of events began to unfold. Provisions in the swaps kicked in, spurring collateral calls on swaps linked to $80 billion in questionable assets, requiring the firm and AIG to come up with billions of dollars in cash. They scrambled for almost a year to stave off the calls, but there were too many deals with too many counterparties.

In September, the Bush administration concluded that AIG's position at the nexus of the deals meant that it could not be allowed to fail, triggering the most expensive rescue of a private company in U.S. history. So far, the government has invested $152 billion in its efforts to save AIG.

Federal investigators are sifting the carnage.

Credit-default swaps exemplify the contradictions of modern finance. At a basic level, they serve as insurance, but they aren't regulated as such. They have allowed companies to free up untold amounts of capital that otherwise would be tied up as collateral for loans. They were sold both to reduce risk and, in some cases, to give clients room to take on more risk — a key component to making money on Wall Street.

But in the end, neither the buyers nor sellers truly understood the risks they created. Anyone could sell such a swap, and anyone could buy one, even if he had no stake in the transaction. Some buyers used them to bet against failing companies, prompting a debate among state regulators about whether this type of swap was a form of gambling.

Credit rating is sacred

AIG's chairman, Maurice "Hank" Greenberg, had once warned Savage that he would come after him "with a pitchfork" if Financial Products did anything to harm AIG's AAA rating. But no one saw credit-default swaps as anything on that scale.

After conversations that included AIG Vice Chairman Edward Matthews and other AIG executives, Greenberg blessed the line of business. "There was a long discussion about it," Savage recalled recently, "and he said it was fine."

Another of the biggest advocates for credit-default swaps was Joseph Cassano, the feisty, hard-working son of a Brooklyn cop who later rose to the top job at Financial Products. Cassano didn't have the pedigree of Financial Products' three founders, who hailed from places such as Bell Labs and the Wharton School. But he had worked with the trio at the junk-bond firm of Drexel Burnham Lambert and had been one of 10 original recruits who left Drexel to start Financial Products.

Cassano, 42, a Brooklyn College graduate, was smart and aggressive — sometimes too aggressive, some executives thought. He had a mercurial temper, occasionally screaming at an underling.

"He was very, very good," Ed Matthews recalled. "But he was arrogant."

Cassano first became the group's chief financial officer and was put in charge of the Transaction Development Group, a new unit hunting for business involving energy products and tax credits. Cassano's portfolio included deals involving credit, so he played a key role in the credit-default swap debate going on inside the company.

Financial Products' drive to keep ahead of its competitors led Cassano and his Transaction Development Group to coal. At first, it seemed like an odd turn, but it played to the company's strength — discovering gaps in regulations and markets and exploiting them.

A 1980 law, generated by President Jimmy Carter's administration, offered tax credits to companies as incentives to design and use synthetic fuel systems. The aim was to reduce U.S. dependence on foreign oil.

Associates at the Transaction Development Group had discovered that many energy companies were not making enough money to benefit from the tax breaks. But Financial Products' profitable parent, AIG, could use those credits to reduce its tax bill.

"One thing AIG had was ample income," Savage said. "So what we did is, we went out and we bought synthetic coal facilities."

The firm had no intention of becoming coal processors. Instead, it arranged to install the equipment — bought for more than $225 million, Savage recalls — at coal facilities and power plants. The facilities leased and operated the machines at a discount, while AIG got millions in tax credits.

Financial Products hedged aspects of the deals, and checked with government officials to make sure the arrangements qualified for the breaks. Savage said the idea was bold as well as clever.

"We had the gumption to go out and take seven of these plants that were sitting around doing nothing," he said. "We carted (the machines) off to where they could be used, and it went on."

Greenberg, too, was taken with the gambit. "It was opportunistic," he said recently. He once joked that he wanted to ride shotgun in the truck carting the machines around, Savage said.

Over the next few years, AIG reaped $875 million in benefits from the deals. It was a coup for Cassano and his group. Although it wasn't Cassano's idea, Savage said, he guided it from concept to reality.

"He says he thought about it for six months," said Savage, who came to appreciate Cassano's single-minded focus. "He made a lot of money for the company."

Savage steps down

In fall 2001, Savage decided to call it quits. He had moved his family to Florida, and briefly considered whether he could manage the commute. The Sept. 11 terror attacks made that sort of arrangement seem impossible. He told Greenberg of his plan to leave.

Cassano emerged as Greenberg's candidate to take over. Some colleagues questioned his qualifications to manage a team that was heavily dependent on quantitative skills. Though he was now the firm's chief operating officer, some colleagues thought he wasn't as conversant with the complex calculations of risk that remained at the heart of the business. Beyond that, few liked his chip-on-the-shoulder demeanor.

Greenberg had come to know Cassano through board meetings over the years. Cassano had won his confidence. The two shared a number of qualities. Both were strong-willed and disliked criticism.

Cassano had one other virtue that helped him land the top job: He followed directions from Greenberg and Matthews, the parent company's leaders. "He told us that in no uncertain terms that he was — that all of his people up there were — smarter than anybody we had at AIG," Matthews said. "And he made it clear that he listened only to two people: He listened to Hank Greenberg and he listened to me."

Cassano would need all the smarts he could muster. He was taking the reins at a challenging juncture. Financial Products was now a $1 billion operation with 225 employees working on a multitude of derivatives deals for clients, involving hundreds of billons of dollars in obligations. But in early 2002, when he replaced Savage, the derivatives industry was coming under a shadow.

A high-flying financial company called Enron was just starting to melt down. Because Enron had systematically abused derivatives as part of its fraudulent corporate accounting, some kinds of derivatives became the focus of regulatory scrutiny and fell out of favor. Structured deals for corporations were a large part of Financial Products' business.

The firm would need to make up lost revenue. "The response to Enron really reduced the toolbox for Financial Products," Savage said. "It wasn't at all clear to me where the profits were going to come from."

Under Cassano, Financial Products would grow, take on more risk and become more top-down than before. The culture that had characterized the firm from the outset — one that relied on informed skepticism in which just about anyone could question dubious aspects of a trade — would change, according to people who worked at the firm.

Cassano disputes the notion that the culture had changed, says Warin, his lawyer. "FP worked closely and had healthy discussions with its internal auditors so they would fully understand the business and investments," Warin said. "Mr. Cassano encouraged this oversight, review and open communication."

Clearing the way

In 2002, some regulators had a hard time seeing the financial value in certain swaps — especially in deals used to remove debts from a corporation's books.

But those regulators were fighting a lost cause. In the waning days of the Clinton administration, Congress had passed the Commodity Futures Modernization Act, which pre-empted derivatives from oversight under state gaming laws and excluded certain swaps from being considered a "security" under SEC rules.

While some regulators had expressed concerns about the act, President Bill Clinton's economic team had agreed that derivatives should not be regulated. Clinton signed the measure, which was part of a larger bill.

"By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," Eric Dinallo, the superintendent of New York state's insurance department, told a Senate committee during recent hearings on the role of derivatives in triggering the financial crisis.

"None of this was a problem as long as the value of everything was going up and defaults were rare. But the problem with this sort of unregulated protection scheme is that when everyone needs to be paid at once, the market is not strong enough to provide the protection everyone suddenly needs."

In August 2002, one Financial Products innovation caught investigators' attention. The year before, Financial Products had been pitching a new way for companies to shed bad debts, and it had found a customer in PNC Financial Services Group, which had $762 million in underperforming assets it wanted to unload.

Ordinarily, the bank would need to account for the falling value of those assets, which would mean a hit to its profits. Associates at Financial Products, working with accountants, thought they had found a way to solve PNC's problem: create "special purpose entities" to take on the unwanted assets.

Federal investigators alleged, however, that the deals were a sham. To make the transactions look legitimate, Financial Products had set up a company to "invest" in the entities, while receiving an equivalent amount in the form of fees, according to the investigators. Structuring the deal this way violated securities laws, FBI agent Randy Tice asserted in an affidavit filed in federal court as part of the simultaneous settlement of a criminal case and an SEC civil complaint.

AIG and two Financial Products subsidiaries agreed to pay an $80 million fine and give back $39.8 million in the fees that it had earned, plus $6.5 million in interest. PNC paid a $115 million fine.

The government announced the settlement on Nov. 30, 2004. In the wake of Enron, the investigators were sending a message. "We are pleased that AIG has accepted responsibility," said Christopher Wray, an assistant U.S. attorney general. "There is no place in our markets for financial transactions that lack economic substance."

The case had another consequence for Greenberg. It brought AIG into the sights of another skeptical investigator: New York Attorney General Eliot Spitzer.

A secret tipster strikes

After the PNC case became public, a tipster approached Spitzer's office. Insurance companies, the tipster said, were selling policies known as "finite insurance." The tipster thought the policies were a fraud. The tipster urged Spitzer's office to examine finite insurance and suggested several companies for scrutiny, including AIG and Gen Re, another large insurance company.

Not long afterward, a black binder from another tipster arrived at Spitzer's office in Lower Manhattan. The 4-inch-thick binder held confidential Gen Re documents. The documents appeared to show that Greenberg had arranged bogus transactions with Gen Re that made it look as if AIG had $500 million more in insurance revenue than it had actually earned.

Spitzer and his people could not believe their luck. It was a case on a silver platter. The next morning, Spitzer told his people to begin work on a Greenberg subpoena.

The end of Greenberg's reign at AIG came with a phone call March 13, 2005. The AIG board had called a meeting to consider allegations from Spitzer that Greenberg had been personally involved in the fraudulent deal with Gen Re.

The board had asked Greenberg to call. Frank Zarb, a veteran Wall Street executive and member of the board's audit committee, told Greenberg that Spitzer had issued an ultimatum: Greenberg had to resign.

"I had no choice," Greenberg said recently. "No choice."

Last year, four Gen Re executives and an AIG employee were found guilty on federal charges related to the investigation Spitzer had launched. AIG restated its 2000-04 earnings.

Greenberg, referred to anonymously in the federal case as "unindicted co-conspirator number 1," maintains that what "we did, from AIG's perspective, was perfectly proper." In a recent interview, he tore into Spitzer: "He destroyed a company. And for what?"

Spitzer said recently that the activities at AIG were too important to ignore. Events have solidified his view as the U.S. economy unraveled last year. "AIG, as we have now all seen," Spitzer said, "was at the center of the web of the entire financial system."

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Forced 'furloughs' cut business costs

Here's the vacation no one wants, courtesy of the recession: forced time off without pay.

Nashville resident Mike Thomas was forced to take a 12-day unpaid leave as a production laborer on a car assembly line when Bowling Green Metalforming temporarily shut down because of weaker demand for its auto parts last month just across the state line in Kentucky.

Thomas, 38, a nonunion worker who makes just over $13 an hour, says it's stressful knowing "another layoff could come at any time."

Financially struggling businesses with workers across Middle Tennessee are requiring employees to take unpaid "furloughs" — temporary layoffs that amount to one-time pay cuts for workers and a cost saving for employers.

In the past year, the number of temporarily laid-off workers nationwide hit a 17-year high. Of 10.3 million unemployed workers in November, roughly 12 percent were unemployed because of temporary layoffs, according to data from the Bureau of Labor Statistics.

The last time this many workers fell into the category was February 1991, when 1.4 million workers were unemployed because of temporary layoffs. As a proportion of the total work force, workers on temporary layoff are roughly 1 percent, nearly the same now as then.

Meanwhile, other companies are taking different cost-cutting steps. Memphis-based FedEx, for example, recently said it is implementing base salary decreases and suspending the company's 401(k) match contributions for a minimum of a year.

"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," said Frederick W. Smith, FedEx chairman, president and CEO. The additional actions are "necessary to help offset weak demand, protect our business and minimize the loss of jobs."

More companies nationwide are enacting a wide range of measures to cut costs and save some jobs, analysts said. About two-thirds of companies surveyed recently have taken five or more of the 18 listed cost-cutting measures ranging from hiring freezes to reduced workweeks, according to the study by Watson Wyatt, a global consulting firm.

"By looking at ways of cutting those costs, whether it be pay freezes or pay reductions, it really protects their important assets, which is people," said Laurie Bienstock, U.S. practice director for Strategic Rewards, part of Watson Wyatt.

Hotel workers, others feel pinch

At the Union Station and Hilton Nashville Downtown hotels, employees were told in the fall that there would be a hiring freeze and a freeze on pay raises to avoid job cuts, said Ray Waters, regional director for hospitality for Turnberry Associates, which owns stakes in both hotels.

The hotels' last hiring freeze was more than 10 years ago, Waters said.

"We felt it was the right thing to do (rather) than to have any layoffs," Waters said. "Sometimes it's better to have a job than to give some people raises and let other people go."

For factory workers, unpaid time is coming in the form of extended shutdowns as manufacturers try to reduce inventory of everything from aluminum to fertilizer.

RV maker Winnebago Industries Inc. said all its workers, including Chief Executive Bob Olson, would take an unpaid week off this quarter, along with a two-week production shutdown during the holidays. 3M Co. said it had ordered some workers to take vacation or unpaid time the last two weeks of the year.

Shutdowns extended

Chrysler, General Motors Corp., Tennessee's Bridgestone plants and Ford Motor Co. have extended annual holiday shutdowns in production to cut costs and adjust to weak consumer demand.

Van Tenpenny, who works at Warren County's Bridgestone Firestone plant, said the temporary plant shutdown caused him to buy less-expensive Christmas gifts.

"With the situation, it's better than the alternative of not having a job," said Tenpenny, financial secretary of the union local that represents many workers at the plant. "The alternative is unemployment and (with) the current job market there is not much out there to go to."

At some companies, though, workers fear furloughs will be a prelude to more permanent layoffs.

Trinh Nguyen, 23, was called into a conference room with four other workers at the 50-person Baltimore architecture and design firm where he works. They were told that they were on a 30-day furlough, starting Dec. 10. "They tried to lighten (it) up as not a termination," Nguyen said.

As he sees it, most of his co-workers will spend their time off hunting for new jobs. Those who succeed won't qualify for severance payments they would have gotten had they been laid off. That would make the furloughs a way for the company to save money on paychecks and severance.

"It's just a harsh situation," Nguyen said.

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An arsenal of engaging stories can bring more clients

We have all heard about needing a 30-second commercial or elevator speech that encapsulates all the most important things about your product, service or talent.

But what you might not have at your fingertips is what I call a working inventory of stories and analogies with which to impress clients. Let me explain.

So many of us when asked what we do for a living might say: "I'm an accountant."

Where can the conversation go from there? Nowhere.

Instead, why not answer that same question (if you are an accountant) with, "I save people money." This answer or others like it — "I design money strategies for clients" or "I help clients grow their money" — gives the questioner an easy way to keep the conversation going. And that's what you want.

What you want the other person to think is: "Well, if she can do that for her other clients, she could do that for me."

It's always important to remember that you can never promise a specific outcome in business.

But, if you tell interesting stories that are NOT about you, but the results you've accomplished for your company or client, you have staked a claim to an advantage over your competitors.

Remember, too, that you must keep in mind the listener's point of view.

Think about the results

If, as an accountant, you are asked by another certified public accountant at a networking event, "What do you do?" — the previous suggested answer won't work.

So, what would you say instead?

In designing your response, remember to think about results — not about your job description or title.

Here's an example: If someone asks me what I do, the first thing that comes to mind is: Why would this person ask?

For instance, are they a meeting planner? Are they the wife of a colleague? Are they a prospective client for executive coaching? Now, I have choices.

I might say: "I am a speaker who helps audiences discover their authenticity, which I define as finding the very best of who they are."

If it's an executive, I might say, "I do group and individual communication coaching that gives my clients the confidence to be the best of who they are."

Or I might say, "I show others how to use body language to be more credible. For instance, let me tell you about a client I had who. … "

People remember our stories.

Live 2009 with an inventory of responses that allow you to never miss an opportunity to engage someone else or have that person engage you.

It can pay off with new business contacts and more success.

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Auto industry braces for more bad news

The good news for the auto industry in December came when General Motors and Chrysler got their federal bailout. The bad news is coming Monday, when automakers are expected to report another month of staggering sales declines.

Many analysts are predicting the industry to report that U.S. sales in December dropped about 40 percent, bringing an official close to what has been one of the industry's most trying years and providing little hope for much improvement in 2009.

The auto Web site Edmunds.com is predicting December sales of 852,000 light vehicles in the U.S., down 38 percent. Deutsche Bank auto analyst Rod Lache predicted a sales drop of 41 percent.

"All the negative factors that were with us the last three months will still have an impact on sales in December," said Jesse Toprak, executive director of industry analysis for Edmunds.

Meanwhile, GM's troubled financial arm, GMAC Financial Services LLC, has received a $5 billion cash injection from the Treasury Department. GM said the money allowed it to launch a low-interest financing program for dozens of its vehicles. "It alleviates one of the main consumer concerns, which is accessing credit," Mark LaNeve, a GM vice president, said of the deal on a conference call earlier this week.

Chuck Hanes, the general manager for Team Chevrolet in Smyrna, said GMAC's recent moves have been a big benefit to dealers, which have been struggling for months with empty showrooms and tight lending requirements.

GMAC recently loosened access to car loans. Plus, GM will begin offering zero-interest loans to non-GMAC lenders.

"We have been anxiously awaiting this," Hanes said. GMAC also recently dropped its minimum credit score down to 620, "which opens it to a broader selection of buyers," he said.

Sales slump is likely to linger

As the battered auto industry staggers into 2009, analysts caution that the sales slump probably will persist.

"Perhaps by the second half of next year there can be a case for an improved economy, or at least an economy that's getting back on its feet," said George Pipas, Ford Motor Co.'s top sales analyst.

A major source of trouble in 2008, particularly for the Detroit Three, was consumers' newfound aversion toward pickups and sport utility vehicles. These high profit-margin vehicles have been the bread and butter for GM, Ford and Chrysler, and Asian automakers like Toyota Motor Corp. and Nissan Motor Co. boosted their own truck and SUV production in recent years.

But if December is anything like the rest of the year, 2008 will be the first year that passenger cars outsold trucks and SUVs since 2000, Pipas said.

"There was a presumption on the part of the auto manufacturers — and it wasn't just a Big Three thing — that trucks would never look back once they outsold cars in 2001," Pipas said. But the summer's run-up in gas prices and a political and consumer climate that has shifted drastically against big gas-guzzlers changed all that this year, he said.

"There's no rebound in the SUV market," he said. "The idea that people are going back to sport utility vehicles is just that — it's an idea."

Gas prices at the pump have fallen dramatically in recent weeks, though. On Friday, the average price of a gallon of unleaded in Nashville was $1.49, according to AAA's latest survey of gas stations. That's down from $2.945 per gallon a year ago here.

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Doctors wary of virtual visits

In the Internet age, surveys show fewer than one in three doctors nationwide engage in "e-visits" with their patients.

And in Brevard County, Fla., the number of physicians communicating electronically may be even lower, according to several tech-savvy doctors.

"I do believe this is the wave of the future, but we aren't there yet," said Dr. Samuel Del Rio, an obstetrician/gynecologist with Partners in Women's Health, owned by Wuesthoff Health System.

Privacy and access problems, liability issues and a lack of reimbursement for dispensing free medical advice lie behind an apparent resistance within the health-care industry to move more rapidly online with these doctor/patient e-relationships. Cost also can play a role, especially in a small practice.

"Physicians are slow to embrace new technology," said Dr. Jeffrey Greenspoon, orthopedic surgeon in Melbourne, who has been communicating with his patients by e-mail for almost a decade. "They are very resistant to change their way of doing things."

Also, Greenspoon said, "economics is a big hurdle," as insurers provide no reimbursement to doctors for their e-mail transactions, even though these communications often substitute for regular office visits.

Dr. Tim Laird, Health First family practice physician in Port St. John, says e-mail consultations with patients, which he has done for several years, are "well suited to simple questions" that may not justify an office visit, but still are of concern to a patient.

"There are a lot of times where you don't need to see the patient in front of you," he said, citing blood pressure readings as "a perfect use for e-mail."

Because patients can take these readings at home, he said, they are able to send the results online so he can determine whether to adjust their blood pressure medications.

Laird said e-mail also is good for sharing routine test results with patients.

Earlier this year, two major insurers, Cigna Corp. and Aetna Inc., expanded pilot programs that compensate physicians who use a secure Internet site to make virtual house calls with patients — a step, doctors say, is in the right direction.

The American Medical Association also recently issued guidelines for physician-patient electronic communications. The guidelines emphasize the need to draw patients into the process at the outset to avoid confusion, and stress that "new communication technologies must never replace" face-to-face time with patients.

Dr. David Hurwitz, clinical director of informatics at Health First, who also works part time as an internist at Omni Healthcare, said there is "huge potential" for doctors to improve communication with patients through e-mail.

But, like his colleagues, he cautions "it's got to be easy and seamless," or it will be a tough sell for many physicians, "especially if they are technophobic."

Most studies show patients don't abuse the privilege of having a direct electronic pipeline to their doctor, if it's available.

In 2007, for example, a University of Pittsburgh study, published in the journal Pediatrics, found that after following 121 families who e-mailed their doctors, 6 percent of e-mails were urgent, with the rest geared to more routine matters. And doctors in the study received most of the e-mails after business hours — about one a day — responding 57 percent faster than by telephone.

Another study by Kaiser Permanente last year found that patients who used the health-care provider's secure Web site were almost 10 percent less likely to schedule an office visit.

Results of the study, published in the American Journal of Managed Care, also found that patients made 14 percent fewer phone calls than those who did not use the online services. Greenspoon's experience supports such findings.

Over the years, the e-mail system has paid off, not only in terms of customer satisfaction, Greenspoon said, but also in making his office far more efficient.

In addition, privacy concerns have not materialized, "to the extent we can now use secure encryption," similar to that used in any credit card transaction.

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Slovakia becomes 16th country to adopt the euro

BRATISLAVA, Slovakia — Slovak banks did brisk business as they opened on New Year's Day for a very special occasion — issuing euros to citizens eager to get their hands on the country's new currency.

The small alpine nation on Thursday became the 16th country to adopt the European Union's euro — a currency that also celebrated its 10th birthday this New Year's Day.

With the addition of Slovakia, the euro will be used by 330 million people with an annual gross domestic product of more than 4 trillion euros ($5.6 trillion).

The decision by this country of 5.4 million people to join the eurozone and abandon the Slovak koruna appears even wiser now amid the global financial crisis, as other European countries have seen their currencies severely buffeted.

"I congratulate Slovakia and warmly welcome all its citizens to the euro area," said EU Commission President Jose Manuel Barroso. "The euro will help Slovakia to take part in, and benefit from, Europe's collective effort to recover from the current economic crisis.

"But the euro is more than just money. On this historic New Year's Day, Slovakia is a powerful symbol of economic and political progress and of European integration."

Slovak Prime Minister Robert Fico's comments were tinged with nostalgia.

"We're saying goodbye to the Slovak currency that meant so much to us," he said.

"Part of us, the Slovak identity, is leaving."

Other currencies suffer

Slovakia is adapting as some people in EU members Denmark and Sweden are rethinking their countries' refusal to sign up. Czech Prime Minister Mirek Topolanek said Thursday his government will set a target date for the euro's adoption in November.

Other countries have seen their currencies hit badly. Neighboring EU member Hungary, once the beacon of economic success in post-communist Eastern Europe, was forced earlier this year to accept a bailout from the International Monetary Fund to avert economic collapse, as has non-EU member Ukraine.

Iceland, neither an EU nor a euro member, has suffered badly as an outsider, being hit with a combination of a plunging currency and the popularity of high-interest foreign currency loans. That means monthly loan repayments for cars and homes have doubled this year, jolting Icelanders as the economy teeters and jobs are slashed.

Katinka Barysch, an analyst at the London-based Centre for European Reform think tank, said recent currency swings have underlined the benefits of the euro to Eastern European states.

"The very stark experience of being in the middle of a global economic storm means they have felt very cold and uncomfortable," she said.

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Many brands vanished in '08

NEW YORK — Shoppers won't be picking up ornate lamps from the Bombay Co. in the coming year. Or investing with Lehman Brothers and Bear Stearns. No flying to Hawaii on Aloha Airlines or buying ultra-cheap tickets on Skybus, either.

All those names vanished this past year, victims of the economy, the financial meltdown or other factors. Experts say 2009 could mark the end of even more well-known brands as the now-yearlong recession puts more struggling companies on life support.

"I think 2009 is going to be a bloodbath," said Scott Testa, a marketing professor at St. Joseph's University in Philadelphia. "I think it's going to be very, very ugly."

For some companies, 2008 was no beauty. The woes of the nation's retailers began before the year even started. The Bombay Co., known for its home accessories and furnishings, filed for bankruptcy last fall and shuttered the last of its stores in January because of slow sales, an ailment that hurt other companies as the economic downturn turned into a recession.

The casualties weren't limited to retail. Travelers also bid adieu to some airlines in 2008 as jet fuel prices soared and consumer spending on extras like travel plunged. Aloha, ATA, Skybus and Champion Air all grounded their planes.

And two of the biggest names that disappeared this year took the economy and consumer confidence down with them.

Bear Stearns was headed toward collapse in March, awash in massive losses from toxic securities tied to subprime loans, before the government engineered a fire sale of the 85-year-old investment bank to JPMorgan Chase & Co. And the credit crunch that paralyzed the world economy only got worse after Lehman Brothers, a 158-year-old company that helped finance America's railroads, became the biggest bankruptcy in U.S. history.

The ripple effect those two failures had on the economy was evident at malls across the nation. Consumers, already nervous about the falling value of their homes and the security of their jobs, curtailed their spending even more.

With sales and profits dropping this year and lenders leery of granting new credit, a number of retailers failed. Home goods seller Linens 'N Things began liquidating its stores after originally filing in May for Chapter 11 bankruptcy protection. Apparel chain Steve & Barry's did the same later in the year. Specialty retailer Sharper Image Corp. also vanished. KB Toys is in the midst of restructuring its business and is liquidating its more than 400 stores.

Of all the brands to disappear in 2008, Testa said, consumers may miss department store chain Mervyns the most because so many shoppers had a connection to the store.

"That's a brand that's been around for a very long time," he said.

Mervyns, which had been operating for five decades, said in October that it would have to liquidate its stores after filing for bankruptcy protection this summer.

The store's faithful shoppers probably will seek out new places that have the brands and prices they want, or may just stop spending if they don't find a replacement that resonates with them as much, said Rita Rodriguez, chief executive for the U.S. division of The Brand Union, a firm that helps companies create brand identities.

That includes 10-year-old Abhijit Ramaprasad of Milpitas, Calif.

"We got most of our clothes there," he said. "We went more times than any other store."

He said he'll now have to go someplace like Kohl's or Macy's, but wasn't looking forward to that because those stores are so much bigger.

Survivors will change

The vanishing acts weren't just in the U.S. British retailer Woolworths Group PLC collapsed late this year after it was unable to sell its 800-store business that was nearly 100 years old.

The stores are closing in stages, with the last set to close next week.

Beyond the brand names customers will no longer see, people may find many familiar businesses looking different. Retailers may operate far fewer stores or sell their goods only online. Banks may become subsidiaries of those that bought them or their names may be joined.

Circuit City Stores Inc., the nation's second-biggest electronics retailer, is closing more than 150 stores and laying off thousands of employees as it keeps operating and attempts to restructure under Chapter 11 bankruptcy protection.

After Bear Stearns' collapse, several other financial companies were able to stay alive by becoming subsidiaries of healthier banks. The names of those institutions remain, but are likely to fade away over time. Washington Mutual, for example, was bought by JPMorgan. The new owner plans to rename Washington Mutual's bank branches.

The shakeout among companies this year will give sturdier brands a chance to shine and set them apart from their less-than-prosperous counterparts, experts said.

Testa said the economic Darwinism will mean only the strongest stores survive, and they'll use the downturn to get more powerful.

Companies will have to find ways to stand out, and that includes making sure customers picky about where they spend their money have a better experience, Rodriguez said.

"The brand is going to have a bigger opportunity to stand out and to articulate a promise and to deliver the experience," she said, "and it's going to have to do that in 2009."

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