Financial life in a big town

Forget style, quality and customer service. This holiday season, all that matters is price.

A week before Halloween and two full months before Christmas, stores are desperately trying to outdo each other in hopes of drawing in customers worn down by the economy.

Wal-Mart, the biggest store in the nation, joined the price wars Monday by announcing that it would give gift cards to shoppers if they buy something there and find it somewhere else cheaper.

Staples and Bed Bath & Beyond have already said they will match the lowest prices of Amazon.com and other big Internet retailers. Sears is going a step further, offering to beat a competitor’s best price by 10 percent.

“The days of marketing the stuff in your store because it was a hot brand are over,” says Dave Ratner, owner of Dave’s Soda & Pet City, a Massachusetts pet food and supplies chain.

For the holidays, Ratner plans to offer 20 percent off pet accessories if customers buy a bag of dog food. Customers, he says, just want a deal.

Almost four years after the onset of the Great Recession, they’ve learned to expect one too. In better times, retailers could afford to keep prices higher and use promises of higher quality and better service to lure people into stores.

Those days are over. In a recent poll of 1,000 shoppers by America’s Research Group, 78 percent said they were more driven by sales than they were a year ago. During the financial meltdown in 2008, that figure was only 68 percent.

Wal-Mart last year went back to its “everyday low prices” roots, a bedrock philosophy of founder Sam Walton, rather than slashing prices only on certain items to draw in customers. Now everyday low prices might not be low enough.

So it’s trying something it is calling the Christmas Price Guarantee. It works this way: If you buy something at Wal-Mart from Nov. 1 to Dec. 25 and find the identical product elsewhere for less, you get a gift card in the amount of the difference.

The deal excludes online prices and some categories of merchandise _ groceries, live plants, tobacco, prescription drugs and wireless devices that require a service agreement. But it is good even if weeks pass between your purchase and spotting the better deal. And it applies even to big items like TVs, for which prices can drop steeply as Christmas approaches.

Duncan MacNaughton, chief merchandising officer for Wal-Mart’s U.S. stores, told reporters Monday that he has noticed “much more promotional intensity and gimmicks” among competitors.

“This gives customers peace of mind that we are an advocate for them,” he said.

Toys R Us’ big book of holiday offers will be packed this year with $8,000 of savings, compared with $5,600 last year, said Bob Friedland, a company spokesman. And it has added an incentive this year: If customers who sign up for its loyalty program spend $200 or more during the holiday season, they will get coupons on toys every month next year.

Retailers are responding to a customer base that is better informed, and more comfortable shopping online, than ever.

Jenna Wahl, a cardiac nurse from Bloomington, Ind., said she expects to spend about as much on holiday gifts this year as last _ roughly $500 _ but will try to get more for her money.

She’ll be asking stores to do more price-matching and plans to use her iPhone to check prices and download coupons.

“I will take things back in order to get the better deal,” she said.

Wal-Mart left online prices out of its Christmas offer, but other stores have decided they may not have that luxury. Staples, for example, is leaving it to the discretion of its store managers to decide whether to match online prices.

Sears’ offer of beating a competitor by 10 percent will not apply to retailers that only do business online, such as Amazon, but will apply to prices that its brick-and-mortar competitors offer on their websites.

The holiday price wars mark an acceleration of a trend that has already swept the retail industry. Lowe’s, the nation’s No. 2 home improvement store, said in August it was starting to focus on everyday low prices for items that customers can easily comparison-shop at rivals like Home Depot and Sears.

And J.C. Penney, the department store chain, said earlier this month that it plans to overhaul its pricing strategy starting in February. So far, it has kept the details a secret.

Wal-Mart stepped up its price matching in April by directing store employees to comb through competitors’ advertisements so price matches at the register would be easier. Wal-Mart’s price match has been around for several years, but it is using it more as a competitive weapon to compete with rivals. It’s launched ads playing up its price matching and has training sales associates to better police prices of local competitors. Customers will still have to ask for the price match.

“Customers have learned to wait on the next big deal because they know that if they wait long enough they can get a lower price than the everyday low price,” Bob Gfeller, Lowe’s executive vice president of merchandising, said to investors in August. “However, we must be vigilant to ensure that our customers perceive us to be priced competitively every day, even against online retailers and smaller category killers.”

Indeed, 64 percent of shoppers polled said that it would take discounts between 30 percent to 50 percent to get them to spend, up from 54 percent last year, according to a recent Citi Investment Research & Analysis survey of a little more than 1,000 customers. Customers looking for 60 percent off as a big motivator to spend increased to 10 percent from 8 percent last year, the survey showed.

Bill Martin, co-founder Shoppertrak, which monitors customer traffic at 25,000 stores nationwide, says retailers are seeing that customers appear in droves when they have big sales for holiday weekends like Black Friday, Memorial Day or Father’s Day. This creates peaks and valleys throughout the year, a trend that hasn’t abated since the recession began in late 2007.

“The reality is consumers are targeted. They’re well informed, and they’ve searched the Internet for price information,” said Bill Martin, co-founder of ShopperTrak, which expects foot traffic to drop 2.2 percent during the holiday season compared with a year ago.

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U.S. homebuilders are a less pessimistic about the struggling housing market, but not enough to signal a recovery any time soon.

The National Association of Home Builders said Tuesday that its index of builder sentiment this month rose from 14 to 18. The index has been below 20 for all but one month during the past two years.

Any reading below 50 indicates negative sentiment about the housing market. It hasn’t reached 50 since April 2006, the peak of the housing boom.

Last year, the number of people who bought new homes fell to its lowest level dating back nearly a half-century. Sales this year haven’t fared much better.

Builders are struggling to compete with foreclosures, which have made the price of previously occupied homes more competitive. Many buyers are having difficulty obtaining loans or meeting higher down payment requirements. Low appraisals are scuttling some deals after contracts have been signed. Some buyers want to upgrade to a new house but are holding off because they can’t sell their home.

David Crowe, the builders group’s chief economist, said some builders are shifting their assessment from “poor” to “fair,” but few are changing their views from “fair” to “good.”

While new homes make up a small portion of sales, they have an outsize impact on the economy. The builders’ trade group says each new home built creates an average of three jobs for a year and generates about $90,000 in taxes.

Separate gauges of current single-family home sales and foot traffic of prospective buyers increased four and three points each, to 18 and 14, respectively. A survey of sales expectations over the next six months rose seven points, to 24.

An index of builders’ outlook in the West rose nine points, to 21. The Midwest and South rose 4 points, to 15 and 19, respectively. The Northeast was unchanged at 15.

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Libyan revolutionary forces bulldozed the green walls surrounding Moammar Gadhafi’s main Tripoli compound on Sunday, saying it was time “to tear down this symbol of tyranny.”

The sprawling, fortress-like compound known as Bab al-Aziziya has long been hated by Libyans who feared to even walk nearby during Gadhafi’s more than four decades in power and its capture was seen as a turning point in the civil war as revolutionaries overran the capital in late August.

Ahmad Ghargory, commander of a revolutionary brigade, said the area will be turned into a public park accessible to all Libyans.

“It’s the revolutionary decision to tear down this symbol of tyranny,” Ghargory said. “We were busy with the war, but now we have the space to do this.”

Already, the courtyard in front of Gadhafi’s former house, which he used for many fiery speeches trying to rally supporters during the uprising, has been turned into a weekly pet market. Tripoli residents roam the premises as if at a museum, with vendors selling revolutionary flags and other souvenirs.

Libyans are eager to move on after decades of repression, even though fighting persists on two fronts and tensions between supporters of the former regime and revolutionary forces remain high _ even in Tripoli. The continued instability has delayed efforts by the transitional leadership to move forward with efforts to hold elections and establish democracy.

The Bab al-Aziziya compound, surrounded by high walls lined with barbed wire, had been a mystery to most Libyans though it is one of the city’s largest landmarks. Many Tripoli residents said they wouldn’t go near it, fearing security guards on the compound’s high green walls would get suspicious and arrest or shoot them.

“I cannot explain these feelings,” Farouk Alzeni, 25, said, standing against a backdrop of piles of rubble. “I have never touched this wall because of this place’s heavy security.”

The compound was a main target for NATO airstrikes during the months leading to Gadhafi’s ouster in late August.

Fighters forced their way into the area on Aug. 23 during the battle for the capital, jubilantly rampaging through the remnants of barracks, personal living quarters and offices seen as the most defining symbol of Gadhafi’s nearly 42-year rule.

Gadhafi’s residence, now gutted and covered with graffiti, was also targeted in a U.S. bombing raid in April 1986, after Washington held Libya responsible for a blast at a Berlin disco that killed two U.S. servicemen. A sculpture of a clenched fist crushing a U.S. fighter jet that had been erected after the strike has been removed.

Gadhafi entertained guests in a Bedouin-style tent pitched near two tennis courts about 200 yards (meters) from the family home.

“All the bad things that happened, happened inside these walls credit reports free. And he kept his mercenaries and tortured people inside these walls,” said Tarek Saleh, a 25-year-old revolutionary. “Before we were never able to enter this site, and we’re tearing these walls down so we don’t have to remember those dark days.”

Revolutionary forces have squeezed Gadhafi loyalists into one main district in his hometown of Sirte after weeks of fighting, but some said fears of friendly fire as well as a lack of coordination and communications were slowing their advance. Fighters from the eastern city of Benghazi and Misrata to the west were trying to reorganize themselves to solve that problem.

“We have them cornered in a 900 by 700 meter area, but the fighting is difficult because we are worried about firing on our own forces, they are mixed together,” Benghazi field commander Khaled al-Magrabi said Sunday.

Commanders said they have agreed to divide the remaining loyalist area between them to prevent confusion.

Libyan fighters also faced discord over the looting of buildings, including the airport and houses in Sirte, on the coast 250 miles (400 kilometers) southeast of Tripoli. Trucks were seen carting off tractors, industrial generators and heavy machinery on the road from Sirte to nearby Misrata, which was under siege by Gadhafi forces for months and saw some of the fiercest fighting of the war.

Associated Press reporters also saw trucks carrying equipment from Sirte’s airport, including red-carpeted mobile staircases, baggage carts, airplane towing vehicles and security screening equipment, all apparently meant for Misrata’s badly damaged airport.

Smaller pickups were loaded with rugs, freezers, refrigerators, furniture and other household goods, apparently taken by civilians and fighters to be used in their homes or resold.

The looting was an indication that reconciliation and unity may be difficult to achieve in post-Gadhafi Libya.

Commanders tried to rein in looting by ordering fighters to refrain from entering private homes and to detain anybody not authorized to be in the area. Benghazi fighters arrested three men for looting on Saturday.

Revolutionary forces also distributed fliers at checkpoints leading into the city that read, “Dear Muslims, avoid God’s wrath. Do not steal from people’s homes, their cars, or take their personal possessions.”

Fighting also raged in the desert enclave of Bani Walid, 90 miles (140 kilometers) southeast of Tripoli.

An official with revolutionary forces there, Abdullah Kenshil, said they captured the airport in Bani Walid on Sunday, but further advance was stalled by heavy shelling from Gadhafi’s forces elsewhere.

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Apple’s latest iPhone arrived to an enthusiastic response from buyers camped out at stores Friday, but many observers noted the crowds were smaller than those that had gathered for previous releases.

The iPhone 4S, which went on sale in seven countries, is faster and comes with better software and an improved camera.

But with the fifth unveiling of its popular iPhone, Apple is finding it difficult to maintain the excitement of past iPhone introductions. For starters, the phone is more widely available than in the past. In addition to Apple stores, people can buy the phone from one of three wireless carriers: AT&T Inc., Sprint Nextel Corp. and Verizon Wireless. Some Best Buy, Target and Walmart stores and authorized resellers also carry the phones. Buyers also were able to pre-order the phone on Apple’s website and have it shipped to their home or office.

Many diehard Apple fans and investors were disappointed that Apple didn’t launch a more radically redesigned new model _ an iPhone 5. It’s been more than a year since Apple’s previous model was released.

That also may have contributed to smaller gatherings at some Apple locations.

“People are not as excited about this version as they might have been if a (iPhone) 5 came out,” said Charles Prosser, 50, a retired teacher and a computer technician from Tuscaloosa, Ala.

Even so, hundreds of buyers camped out in front of stores for hours to be among the first to get an iPhone 4S. About 200 people were at Apple’s Fifth Avenue store in Manhattan as the iPhone 4S went on sale.

Steve Wozniak, who created Apple with Steve Jobs in a Silicon Valley garage in 1976, was first in line at a store in Los Gatos, Calif., having arrived on his Segway the afternoon before.

Wozniak, who typically waits in line for new Apple products, said he barely slept Thursday night as he was busy chatting with Apple fans, taking photos and giving autographs. Wozniak pre-ordered two new iPhones; on Friday, he bought two more.

“I just want to be part of an important event, so I feel it more deeply,” he said.

Many said the event resembled a remembrance to Jobs, who died last week, a day after Apple Inc. announced the new phone.

Emily Smith, a 27-year-old user experience designer in New York, checked in to the line on the location-centric social network Foursquare. She got a virtual Steve Jobs badge that read: “Here’s to the crazy ones. ThankYouSteve.”

Others joked that the 4S model stood “for Steve.”

Tony Medina, a 25-year-old student from Manhattan, got in line at 11 p.m. and stayed despite getting soaked by an overnight thunderstorm. He said he planned on ordering the phone online, but decided to join the crowds to honor Jobs. “For loyalty, I felt I had to do the line,” he said. “I had to say thank you.”

In Chicago, Nicole Pacheco, 17, dragged her brother and a friend out to buy Apple’s latest gadget.

“I wanted to see how it was, to come out here for once,” she said as she looked at the line that stretched past her. “We’re kind of a memory for Steve Jobs. It’s one of his last inventions. It kind of motivated me to get the next one.”

As was the case with past Apple product launches, employees at many Apple stores greeted customers with cheers and smiles and congratulated them on their purchases. The company provided free coffee.

Dina Nguyen, who works at the Great America amusement park in Santa Clara, came to the store with her brother, Kennedy, to pick up four iPhones for their family. They are the first Apple products for the siblings. Their mom has the iPhone 4.

The siblings said it was a bit sentimental to get the phones now, right after Jobs’ death.

“He left a good legacy. He had a good life. He wanted to make people happy. It’s good to support that,” Kennedy Nguyen said.

Apple and phone companies in seven countries started taking orders for the iPhone 4S last Friday. Apple said Monday that more than 1 million orders came in, breaking the record set by last year’s model, which was available in fewer countries and on fewer carriers.

The death of Jobs could be helping sales. Marketing experts say products designed by widely admired figures such as Jobs usually see an upsurge in sales after their death.

Una Chen, a 24-year-old banker, said she was just happy to swap out her BlackBerry Bold for the new iPhone, particularly after a BlackBerry outage affected her phone this week.

“It’s not good to have a phone and not be able to use it,” Chen said.

The base model of the iPhone 4S costs $199 in the U.S. with a two-year contract. It comes with 16 gigabytes of storage. Customers can get 32 gigabytes for $299 and 64 gigabytes for $399. Customers have a choice of white or black.

The phones also debuted Friday in Australia, Canada, France, Germany, Japan and Britain. They are coming to 22 more countries by the end of the month.

The phone has a faster processor and an improved camera compared with last year’s model. It has a new operating system that allows users to sync content without needing a computer. It also includes a futuristic, voice-activated service that responds to spoken commands and questions such as “Do I need an umbrella today?”

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Stocks in Europe recouped some recent losses on Wednesday on hopes that European policymakers were thrashing out a plan to shore up the banking sector, which has been savaged of late over fears of a Greek debt default.

In an interview with the Financial Times newspaper, European Commissioner Olli Rehn hinted at a possible bank recapitalization plan. The comments started a stock market rally when they first emerged, late Tuesday on Wall Street. With an hour to go, sentiment turned around massively _ from being nearly 2 percent lower, the Standard & Poor’s 500 index ended up over 2 percent higher.

The upbeat finish on Wall Street failed to give Asian stocks much of a fillip but European markets rose in early trading, despite a three-notch downgrade of Italy’s sovereign debt to A2 by the Moody’s credit rating agency and another day of widespread strikes in Greece, the epicenter of Europe’s debt woes.

“Traders on both sides of the Atlantic seem set to look for the positives here at least in the short term and with stocks once again trading down at discount levels, there may well be a temptation to start cherry picking some bargains,” said Cameron Peacock, market analyst at IG Markets.

Germany’s DAX was 2 percent higher at 5,320 while the CAC-40 in France rose 2.3 percent to 2,916. The FTSE 100 index of leading British shares was 1.9 percent higher at 5,039.

The euro was also shored up by reports of a recapitalization plan, trading 0.1 percent higher at $1.3325.

However, investors will be careful not to get too carried away. After all, sentiment has fluctuated wildly between despair and hope over the 21 months or so that Europe has been mired in its debt crisis.

“Whilst it is encouraging that EU leaders are addressing the perceived weakness of the financial system, it would not be unusual for the initial positive reaction to be followed by concern on delay and lack of agreement amongst member states,” said Adam Cole, an analyst at RBC Capital Markets business card.

Franco-Belgian bank Dexia will be in the spotlight once again Wednesday amid mounting expectations that it will be broken up somehow, possibly this week.

Dexia is at the forefront of investor concerns over its exposure to potentially bad debt from Europe’s most indebted countries. With the markets bracing for a Greek debt default soon, investors are concerned about what bonds Europe’s banks are holding, and banks themselves have become reluctant to lend to one another.

At one point Tuesday the bank’s share price plunged nearly 40 percent, prompting France and Belgium to launch crisis-management initiatives designed to prevent a complete rout. It finished over 20 percent lower on Tuesday.

Hopes that some sort of salvage operation will be mounted in the coming days has helped the stock rebound around 3 percent in early trading Wednesday.

In Asia, the mood was less benign, with Japan’s Nikkei index closing 0.9 percent lower at 8,382.98 and Korea’s Kospi index ending 2.3 percent down at 1,666.52.

Stock markets in Hong Kong and mainland China were closed for a holiday.

The more buoyant tone in European stock markets helped oil prices rebound too. Benchmark oil for November delivery rose $2.53 to $78.20 a barrel on the New York Mercantile Exchange.

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Gunmen disguised as police officers seized control of a police station in western Iraq Monday morning, killing four people and taking dozens of hostages before Iraqi forces swept in and ended the standoff, Iraqi officials said.

The three-hour hostage crisis, as well as another attack nearby on a police officer’s house, demonstrated the vulnerability of the Iraqi security forces at a time when American troops are swiftly drawing down their presence after more than eight years of war.

Four insurgents wearing explosives vests underneath police uniforms and armed with grenades and pistols with silencers walked into the police compound in al-Baghdadi around 9 a.m., said Brig. Mohammed al-Fahdawi of the Iraqi army’s 7th Division in Anbar province. Because the gunmen were wearing police uniforms, they were not searched, he said.

The gunmen shot and killed three police officers, including the director of the police station, and an employee in the mayor’s office before seizing weapons held in the police station, said al-Fahdawi, who coordinated the rescue operation.

The gunmen herded the hostages into some of the rooms, said a police officer at the scene who did not want to be identified because he was not authorized to speak to the media.

After the Iraqi army arrived on the scene and exchanged gunfire with the assailants, al-Fahdawi said he ordered his men to storm the building.

The mayor, Muhanad Zbar Mutlaq, was inside at the time.

After hearing the shooting, the mayor grabbed his cell phone and ran into the bathroom next to his office, locking the door behind him. He said he put his cell phone on silent and began sending text messages to Iraqi army officers he knows.

“Some of the terrorists entered my office and one of them picked up my landline phone when it was ringing and said: ‘We are the fighters of the Islamic State of Iraq,’” said Mutlaq. The Islamic State of Iraq is a front group for al-Qaida. Mutlaq said he could tell by the speaker’s voice that he was Iraqi.

“When I was rescued I saw blood everywhere with pieces of human flesh of the two terrorists who blew themselves up,” he added.

Two of the insurgents blew themselves up when Iraqi police stormed the station to free the estimated 40 people held inside, said al-Fahdawi. Security forces killed the other two assailants, he said.

Deputy governor of Anbar province Dhari Arkan confirmed that the hostage standoff had ended and said four people were killed.

“The security measures here are zero. Some weeks ago terrorists were able to blow up the provincial council and today they were able to break into a police station,” he said.

Earlier this month, two suicide bombers blew themselves up in front of the government compound in the Anbar provincial capital of Ramadi, killing four people and wounding eight others.

Insurgents frequently go after Iraqi government targets in an effort to destabilize the security situation, and the Ramadi building has been targeted repeatedly by suicide bombers.

The mayor of the nearby town of Hit, Hikmat Juber, said many of the hostages were government officials working on the second floor of the building.

Gunmen also attacked the home of the police chief in the town of al-Dolab about 10 miles (16 kilometers) away from al-Baghdadi, said Lt. Col. Mohammed Ismail of the Anbar police media office. He said three gunmen were killed when they tried to storm the house, which is located near the town’s police station.

Al-Fahdawi confirmed that attack and said two of the police chief’s guards were also killed. He said two gunmen were arrested.

Violence in Iraq is nothing like it was in 2006 or 2007 when the insurgency was at its most vicious. But militants have demonstrated a dogged persistence in carrying out attacks despite repeated crackdowns by U.S. and Iraqi forces.

Anbar is Iraq’s largest province and the desert area is mostly home to Sunnis. The province has been a hotbed of Iraq’s insurgency for years. Sunni militants aligned with terror groups such as al-Qaida often attack the local police and military, whom they see as traitors and supporters of the Shiite-led government.

Under a 2008 agreement, all American forces must leave Iraq by the end of this year, although U.S. and Iraqi officials have been discussing retaining a small U.S. military presence into 2012. There are currently about 43,000 troops still in the country.

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Associated Press writers Mazin Yahya and Saad Abdul-Kadir contributed to this report.

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Halloween is around the corner. So let’s conjure up a scary story.

This being a financial column, the gremlins in our tale won’t suck your blood. They’ll drain your 401(k) instead.

We’ll call our story Lehman II: With a Vengeance (and a Greek accent).

The 2008 prequel, as you’ll recall, started with the collapse of the Lehman Brothers investment house. That sent a nervous financial system into full panic, paralyzed credit, erased half the value of the stock market and deepened the Great Recession.

That movie took place in New York. The evildoers in our sequel will devour the European economy, before leaping the Atlantic.

Like all good sci-fi, we’ll start with fact before spinning off into plausible fantasy. Scene One will open with news clips of rioting Greeks, mad as hell about having to pay their debts.

Then we’ll show anguished French bankers wringing their hands over all the money they have in Greek bonds. Germans will shout “Nein!” to bailing out Greeks.

Next, a gray eminence of the financial system, his face bathed in creepy shadow, will intone that Doom is Nigh.

That’s all pretty factual. Right now, the European financial system is giving off signs of the apocalypse.

There’s an under-the-table run on European banks. American money-market mutual funds, long a main source of dollar funding for the Europeans, are fleeing the Continent. Other sources of bank funding are getting clunky or drying up.

There’s a run on the bonds of Spain and Italy, too, even though those two countries are quite solvent.

Worldwide, money is running for safety, mainly to the U.S. dollar. All that money is driving yield on the 10-year Treasury bond to the lowest levels since the 1940s. The euro is down 8 percent against the dollar since August. The Chinese yuan is weakening.

The American stock market is bouncing up and down, lately in synch with news from Europe. The memory Lehman Brothers haunts Wall Street.

In every good scary movie, there’s a scene in which the audience knows more than the characters. We know the devil is lurking in the cellar, but the cute teenagers wander clueless through the house. As they get close to the cellar door, we want to yell, “Don’t go there!”

Right now, financial officials in America, Canada and elsewhere are yelling at Europe. Treasury Secretary Timothy Geitner, the gray eminence of our tale, is warning of a “threat of cascading default, bank runs and catastrophic risk.”

In other words, “Don’t go there!”

True to the genre, European leaders are behaving like fickle teens. They’re arguing over who should bail out the Greeks, Portuguese and Irish. Not us, say the rich northern nations. Yes, you, says all Southern Europe, and America too.

Some German politicians are acting like the Bush administration when it refused to bail out Lehman in 2008. No bailouts for the irresponsible, they said. We know what happened next.

The European Central Bank is fighting, not the last war, but the war before that. It’s still fixated on the memory of hyperinflation in the Weimer Republic after World War I, when the danger now is an economy-eating meltdown.

Here’s how the plot might pan out. The Greeks, burdened by debts they can’t possibly repay, default. Greek banks, which hold lots of that debt, fail and depositors lose their money. Bank depositors in other weakling nations, Ireland and Portugal, see that and run to their own banks to pull money out. Those banks fail, putting pressure on Spanish and Italian banks. French banks, strong enough to withstand a Greek default, can’t stand a Spanish and Italian collapse. Everybody wonders who’s next. There comes a full-blown panic and credit freeze, bringing on a deep recession in Europe.

This hops the Atlantic in several ways. American banks have little exposure to European sovereign debt, but they lend quite a bit to European corporations. Three years after Lehman, derivative investments are still a black hole; no one knows our exposure there. Meanwhile, recession in Europe saps the profit of American internationals.

The upshot: falling American stock prices, tighter credit, a return to mild recession in the U.S., although nothing as bad as in Europe. Our banks, after all, are a lot stronger than they were in 2008.

What are the chances of our scary story coming true?

About 20 percent, says Paul Christopher, chief international investment strategist at Wells Fargo Advisors in St. Louis. He’s betting on sweet reason.

Despite all the caterwauling, he thinks Europe will give Greece the next payment in its bailout this month, putting off the crisis for another three months or so.

But the Greeks eventually will default. The trick will be to handle that in a way to prevent our movie from coming true.

That means pumping capital into the banks now so they can take any hit, while putting together a standby bailout fund in case things get further out of hand. Europe is assembling a $594 billion fund, but it probably needs to be $1 trillion.

The German Bundestag, after a big argument, voted to OK the smaller bailout figure last week. But to do anything in the eurozone requires 17 nations to agree.

Christopher thinks the nervous markets will force their hand over the next few months. That means a volatile time for investors until the final deal is struck.

Across town at Edward Jones, market strategist Kate Warne also thinks Europe will come to its senses. “They all see that the alternative is much worse,” she says.

They all remember Lehman. “No one wants to live that movie again. We want the movie to end differently,” she says.

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Russia’s finance minister has said he will step down rather than serve under Dmitry Medvedev if the president becomes prime minister next year as planned.

Alexei Kudrin has been finance minister since 2000 and his conservative fiscal policies are widely credited with helping Russia weather the 2008-2009 global financial crisis.

He is close to Vladimir Putin, the current prime minister, who Saturday announced his intention to return to the presidency next year. Putin said he would then name Medvedev prime minister.

Kudrin told reporters from Russia’s state news agencies in Washington later Saturday that he would not serve in Medvedev’s government because of disagreements over economic policy.

He specifically cited Medvedev’s plans to increase military spending.

“I do not see myself in the new government, and it is not just that I have not been offered the job,” he told reporters on the sidelines of the annual meeting of the International Monetary Fund and World Bank. “I think that those differences of opinion that I have will not allow me to join the government.”

During Putin’s presidency from 2000 to 2008, Kudrin stashed some of the revenue from Russia’s oil exports in a stabilization fund cash advance loan no fax. In doing so, he had faced strong opposition from other government ministers who wanted the money for expenditures, but when the financial crisis hit and oil prices fell, those savings proved crucial in reducing the blow.

Medvedev’s spokeswoman, Natalya Timakova, said it was too soon to discuss the composition of the next government.

“President Medvedev and Prime Minister Putin proceed from the understanding that all federal officials are continuing to perform their duties at their place of work,” she was quoted by state news agencies as saying. “If someone has other ideas, they should be ready to change their place of work.”

Putin’s spokesman said Kudrin has never hidden his disagreements with Putin or Medvedev on economic policies.

“He is a professional economist,” Dmitry Peskov was quoted as saying. “He is an economist with a capital letter.”

Kudrin, 50, had been mentioned as a possible prime minister under Putin if he returned to the presidency.

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Asian stocks faced sharp losses early Friday following a precipitous session of trading of Wall Street sparked by fears that a global recession may already be under way.

Hong Kong’s Hang Seng index fell 2.3 percent to 17,493.07, a day after tumbling nearly 5 percent. South Korea’s Kospi plunged 4.8 percent at 1,713.56.

Australia’s S&P ASX 200 fell 1.4 percent to 3,909.5. Markets in Japan were closed for a public holiday.

Investors headed for the exits Thursday as they gave in to fears that a global recession was already under way. Selling started in Asia, picked up speed in Europe and sent Wall Street near its worst finish of the year.

The Dow Jones industrial average fell 3.5 percent to close at 10,733.83. It was the second consecutive rout in the stock market since Wednesday afternoon, when the Federal Reserve announced a change in strategy for fighting the economic slowdown _ a bid to lower long-term interest rates and get people and companies to spend more money.

The Standard & Poor’s 500 index, a broader measure of the stock market, and the Nasdaq composite, which is more heavily weighted with technology stocks, both fell more than 3 percent for the day.

Economic news was bad around the world. A closely watched survey in Europe indicated a recession could be on the way there, and a manufacturing survey suggested a slowdown in China, which has been one of the hottest economies.

Volatility has been exacerbated by investors who find themselves outside their “comfort zones,” according to Sean Darby, equity strategist at Jeffries Hong Kong Ltd.

“The low incidence of sovereign defaults and banking crises until 2008 created a false sense of security amongst investors that this was the ‘norm’. In reality, the global economy tends to experience long periods where countries are in default,” Darby wrote in a report.

The Fed announced Wednesday that it would shuffle $400 billion of its own holdings in hopes of reducing interest rates on long-term loans, a plan known as Operation Twist. The central bank hopes that if people and businesses are able to borrow money more cheaply, they will spend throughout the economy and give it a lift.

Still, the Fed announcement troubled investors because it came with a bleak assessment of the future. The Fed said it sees “significant downside risks to the economic outlook,” including volatility in overseas markets.

Asian stocks were hammered to start the world’s trading. The Nikkei index in Japan fell 2.1 percent. The main stock averages fell 2.8 percent in China, 2.9 percent in South Korea, 2.6 percent in Australia and almost 5 percent in Hong Kong.

Europe fared even worse. The stock market fell 5.3 percent in France, 5 percent in Germany and 4.7 percent in Britain.

Source

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