>> in my mind, getting us back to a really healthy economy, i don't see that happening in the next three to five years. >> susie: nobel laureate economist joseph stiglitz says the only way to make that happen faster is to pour on the stimulus. >> tom: from jobs to housing, we hear his plan for fixing the economy, in our exclusive interview. you're watching "nightly business report" for monday, october 4. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:

this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. the justice department sued american express, visa and mastercard today for strong-

arming merchants and consumers. tom, attorney general eric holder is accusing the credit card giants of using anti- competitive practices. >> tom: susie, visa and mastercard agreed to settle those charges, but american express vowed to fight the suit. this case is all about the conditions and fees credit card networks impose on stores for taking their cards. >> susie: those swipe fees totaled $35 billion last year alone. attorney general holder says those conditions are anti- competitive because they keep merchants from offering discounts to their customers. >> the companies put merchants and consumers in a no-win situation. "accept our card, pay our fees and don't even think about trying to get a discount." these restrictive rules prevent price competition among credit card networks, which means merchants face increased business costs and consumers pay higher prices. >> susie: american express says it will defend its right to negotiate freely with retailers.

meanwhile, visa and mastercard say they'll now let merchants offer discounts to consumers who use less expensive types of credit cards, like non-rewards credit cards. >> tom: also from the justice department tonight, a separate crackdown involves swiss medical device maker synthes and its subsidiary norian. they agreed to pay $23 million for doing clinical trials of a bone cement without an okay from the food and drug administration. court papers show norian also illegally sold that product until three patients died. nightly business report first reported six months ago the government is getting tougher with medical companies. as part of this landmark settlement, synthes will sell the norian unit. it's the first time a company has been forced to sell a piece of its business. assistant inspector general at the department of health and human services greg demske says that's an important part of the punishment. >> when there's criminal misconduct that puts patients at risk, that there's a material

impact on the company that goes beyond simply payment of money. so that in this case, the subsidiary will now be owned and operated by a different company with different management. >> tom: demske says we should expect to see more settlements like this. part of norian's plea excludes it from participating in federal health care programs like medicare and medicaid. synthes may face a similar ban. >> susie: here are the stories in tonight's n.b.r. newswheel: stocks stumble as investors wait for earnings season to kick off later this week. the dow fell 78 points, the nasdaq lost 26 and the s&p 500 down nine. trading volume started the week on the light side, with 942 million shares moving on the big board and 1.9 billion on the nasdaq. the number of people signing sales contracts for homes was up for the second month in a row in august, rising over 4%. but year over year, pending home

sales are still off about 20%. the federal reserve board has two new members. janet yellen was sworn in as vice chairman of the central bank, she was the former president of the san francisco fed bank. also, former maryland financial regulator sarah bloom raskin became a fed governor. and california's highest court upheld governor arnold schwarzenegger's order to furlough state workers. unions fought the furloughs, which began in february. they say the days off without pay are a salary cut of almost 14% for state workers. >> tom: still ahead, the financial crisis brought the spotlight onto c.e.o. pay. how more transparency and fewer rewards for risk-taking are changing the boss's pay day. >> susie: the u.s. government needs to inject more money into the economy. that's what joseph stiglitz, the nobel prize-winning economist, believes will fix the american economy and prevent it from sliding back into recession. when i talked with stiglitz earlier today, he explained his

case for more stimulus. >> the reason you need government to provide the stimulus is the private sector can't do it. the private sector on its own is not going to increase demand, consumption, investment, exports, none of the other sources are there to increase demand that will create the jobs. there is no alternative. >> susie: but congress has no interest to approve another stimulus plan what happens to the economy without it? >> unless we have another stimulus we will continue to have unemployment at 9, 9 and a half percent, maybe it will go down to 8.5%, but that's not acceptable. and if that happens, we are going to be losing the skills of our people, people who are unemployed for a long periods of time, lose valuable skills.

when they finally get a job it will be at lower wages and the difficulty of getting the unemployment rate down becomes greater and greater. >> susie: it sounds like you are painting a picture of another recession. >> i think there's substantial risk but that will depend in part on whether we have a secretary stimulus and what happens outside our borderss, for instance, what happens in europe. if europe adopts the strong austerity measures like some of the european countries are talking about, almost surely their economy is going to weaken. that means they will be able to buy less goods from the united states. and may also mean the confidence in europe will go down, the exchange rate will go down and that means the dollar, the value of the dollar goes up and that makes it more difficult for us to export. >> susie: so the federal reserve is talking about pumping billions of dollars by buying government bonds will that help, will that jump-start the economy? >> this strategy is to the going to jump-start the economy. interest rates are already

very low and all-time low. big firms are sitting on a lot of cash. changing interest rate is to the going to affect what they do. smaller firms need cash. some of them would like to get more money. but lowering the interest rate is not going to change in a substantial way their access to capital on the part of banks sudz what should the fed do? is there anything that the fed can do? >> there are things it can do to try to encourage lending. for instance, one of the things it could do, it can say if are you going to have access to the fed window, access to government money at low-interest rates, you have to pass on that. you have to lend more. otherwise we're going to charge you a higher interest rate. you have to provide incentives. >> susie: the president of the federal reserve bank of boston was on our program last week and he says it will take three to five years for the economy to recovery. do you agree with that sm. >> i think it's probably optimistic but basically i

agree it's going to be a long time. projections on how long it's going to be before unemployment gets down to 6% are in that 3 to 5 year range. >> susie: what your economic outlook for 2011 in. >> i think that what we are really doing is movinging into a japanese-still malaise. the economy will be growing much more slowly than it was at the beginning of 2010. it's not clear whether it will actually decline. i think there's enough dk-- for it to continue but a lot of uncertainties. >> susie: so what are the lessons of what happened in the japanese economy so we don't repeat them and we get out of our malaise quicker? >> a second round of stimulus. do something effective about the foreclosure problem, about americans losing their homes. and make sure that the flow

of credit to small and medium sized enterprises gets going. and that may mean creating a new facility within the government. it may mean putting stronger incentive, carrots and sticks for our banks. >> susie: new legal fights are breaking out over foreclosures. attorneys general in several states, including california and florida, are investigating whether lenders have properly

verified the paperwork needed to process foreclosure claims. bank of america, wells fargo, g.m.a.c. and j.p. morgan chase are among the lenders under scrutiny for flawed foreclosure documents. stephanie dhue takes a look at what those problems could mean for the housing recovery. >> reporter: by law, lenders foreclosing have to prove they own the property and, without the right documentation, that's difficult to do. consumer attorney ira rheingold says getting the paperwork right is costly for lenders. >> it would slow down the process, and it would require them to obey the law-- and obeying the law and slowing down the process would cost the servicing industry money. they don't want to spend the money, and they've been getting away with this for years. >> reporter: it will take time to sort through all that paperwork, and that could keep some borrowers in their homes longer. in the 23 states where judges have to approve foreclosures, people in default on their mortgages are staying in their homes an average of two years. that's up from 18 months just three years ago.

economist mark zandi expects the paperwork problems to delay a recovery in the housing market, as investors who have been snapping up foreclosed properties pull back. >> investors don't like any uncertainty, especially when it comes to title of the property. they've got to know that they own the property if they are going to buy it, so anything that sheds doubt on that process makes them very, very nervous. >> reporter: but rheingold sees this as an opportunity for lenders to keep people in their homes, by modifying mortgages instead of foreclosing. he wants the administration to put a three-month moratorium on all foreclosures. >> i think the government needs to say, "whoa, we've got a gigantic mess here, let's stop, catch our breath, prove how we fix this, get it fixed and then move forward from there." and i think as part of that deep breath is a chance to actually help people save their homes. >> reporter: banks already own a lot of homes they have yet to put up for sale. realtytrac predicts 3.5 million more distressed properties will hit the market in the next two

to three years. >> the market's absorbing about a million of those distressed assets on a year-over-year basis, so we have about a 3.5- year inventory to work through. >> reporter: treasury officials say moratorium decisions should be left up to the states, and it has asked bank regulators to make sure lenders' foreclosure process complies with the law. stephanie dhue, "nightly business report," washington. >> tom: the u.s. supreme court >> susie: began a new session today with a new justice, elena kagan, on the bench. the high court will hear 17 business-related cases this term, including three dealing with whether federal law pre- empts state law. also on the docket, four employment-related cases, and two that address consumer finance and bankruptcy. the justices will also hear a major free speech case about sales of violent video games. they'll decide whether a california law that heavily regulates video game manufacturers is unconstitutional.

>> tom: well, this first monday in october got off to a bit of a weak start for stock investors. let's get you updated in tonight's" market focus ". >> tom: between the government going after credit card companies and another drop in factory orders, stocks were weak today, not even helped by some merger actions. american express was the worst- performing stock in the dow industrials, and the second worst of the s%p 500, falling as we told you it fights the justice department on antitrust accusations. a-x-p stock plummeted almost 7% on three times its average volume. the sell-off takes shares down to a five-month low. as we mentioned at the top of the program, american express is fighting the claim that fees it charges merchants are anti- competitive. visa and mastercard have visa and mastercard have settled these accusations, and their stocks saw much smaller losses compared to american express.

earning season begins this week with alcoa, the first dow industrial component to report. shares are turning lower ahead of thursday's results. the materials sector overall was the weakest today. alcoa fell more than 2.5% today. this is a 180-session chart. the stock clearly had been rallying, perhaps in anticipation of strong earnings. shares were up 18% in september. the merger rumors coming off the weekend weren't enough to lift the broad market, but there were some clear winners, including sara lee. s-l-e. here's the jump today, more than 7%. on this 90-session chart, you can see how the rally takes shares to a one-month high. on a longer chart, shares have been pretty stable over the past 12 months, generally sticking between $13 and $16 per share. reports indicate buyout shop k.k.r. expressed interest in buying sara lee earlier this year, but the company said no. other rumor and two deals, computer data storage company isilon hit a new three-and-a- half-year high. bloomberg reports it hopes to spark a bidding war similar to

the fight for rival 3par that was conducted between hewlett- packard and dell. two real deals, real estate operator m.i. has an offer to go private for $13 per share. although shares jumping well above that price. delivery and logistics company dynamex has an offer of $21.25 per share to go private. microsoft was the most actively traded nasdaq stock, seeing twice its normal pace. goldman sachs cut its rating on the shares. the stock fell 2%. goldman cut microsoft from "buy" to "neutral," saying the company needs a big increase to its dividend, a better consumer strategy and to step up its position in cloud computing. another stock moving on an analyst call was ford, rising almost 5%. morgan stanley began coverage of shares of ford, calling it overweight. airline and travel site stocks were under some pressure today as the state department warns americans traveling in europe about potential terrorism. delta was the biggest airline loser, down 4%. investment house raymond james

thinks it faces new competition at its biggest hub, atlanta, with the southwest/airtran merger announced last week. american airlines' parent company fell almost 4%. neither of them say they've seen bookings impacted by the warning. travel booking sites expedia and priceline.com each fell about 2%. and that's tonight's "market focus." >> tom: two years after the near-collapse of the economy, rewards for risky behavior remain under scrutiny by shareholders and regulators. bailout money came with executive pay restrictions, forcing lots of companies,

bailed out or not, to change how they pay their top leaders. kevin kelly is c.e.o. of executive recruitment firm heidrick & struggles. are kevin, welcome to nightly business report. >> good to be here. >> tom: would you call today's executive pay packages, the total packages more reasonable? >> i think there's been a fundamental shift in pay packages over the course of the last 18, 12 to 18 months, driven by performance, to the just for showing up. >> tom: so are they rewarding less risk-taking, do you think? >> i just think you see a, again, the shift has been more towards driving a corelation between metrics a c.e.o. can control, so for example ebitda or return on-- . >> tom: earnings before interest, taxes, appreciate, amortization. >> correct or a return-- things the c.e.o. has the ability to control versus historically just basing it on the share price. the c.e.o. doesn't have controlover a recession but he has control over certain

metrics and now boards of directors and shareholders are demanding that c.e.o.s get compensated based on those metrics. >> tom: the sec a little more than a year ago countryed more disclosure in annual filings for companies, do you think that's helped? >> i do, i think has helped immensely and i think that again boards of directors have taken it seriously. and you see that scrutiny driven down through the organization not only at the c.e.o. level but through executive comp in general. >> tom: and how that executive compensation has been structured clearly has changed over the years and a couple trended you identified is something called to pay for pulse, that means pay for performance, not just showing up, more restricted stock and fewer stock options, what is the result on this kind of performance. >> i think you see c.e.o. taking a hard look at the levers they:can control and show performance or in actuality what they have done in an organization to get rewarded. as you mentioned, historically you see c.e.o.s are most c.e.o.s being

rewarded with options. stock options and when the market is gone from 8,000 to 11,000, that's an easy thing to be we regarded with stock option. however in today's environment when the market is in a downward trend it's more aligned and we're seeing more careers get rewarded through the issue of restricted stock units. >> tom: clearly more focus on active performance but still we are seeing big paydays am you know these ratios very well. in 1980 the average c.e.o. was about 44 times the average worker and today it's closer to 344 times. so you know, how do you justify this continued big discrepancy in executive pay? >> well, i mean, again, i think with the awareness comes responsibility and you've seen whether it's the sec, whether it's shareholders, whether it's the public in general, you have seen more scrutiny under c.e.o. and executive compensation. and i think will you start seeing that trend go, you know, again, more on the pay for performance and given the scrutiny under it, executives making sure that

they're delivering to their shareholders and employees and investors. >> tom: kevin, we appreciate the insight thanks so much for bringing us in the boardroom. >> my pleasure. >> tom: kevin kelly the chief executive officer of executive recruitment firm heidrick & struggles. >> susie: here's what we're watching for tomorrow: quarterly results from yum! brands, along with the i.s.m. services index. it shows the strength of the non-manufacturing segment of the economy. and, our word on the street is "gold". prices are at record highs as it gets easier to buy and sell gold, without ever touching the yellow metal. what you should know about gold e.t.f.s before you buy. remember those massive toyota recalls? the automaker said today it has finished repairs on more than five million vehicles with acceleration and braking issues. that's about 70% of all vehicles recalled. the company also says all of next year's toyota, lexus and scion vehicles will have data recorders. those so-called black-boxes can

identify the cause of accidents and provide information about braking before, and after, a collision. >> tom: the houston ship channel will reopen tomorrow night. that's the latest from the coast guard after a barge accident over the weekend. the channel is the main way into and out of the port of houston, home to some of the nation's biggest oil refineries. the coast guard says the shut- down will likely cause about $1 billion in economic losses.

>> susie: with just four weeks to go until the midterm elections, tonight's commentator is looking past november 2. he's mark zandi, chief economist at moody's analytics. >> with unemployment at 9.6% and drifting higher, the electorate is in a foul mood. no matter what incumbents say, it doesn't matter. yes, the economy is much better than it would have been if policymakers had not bailed out the banks and automakers. and it's no coincidence that the recession ended last summer when the fiscal stimulus was providing its maximum boost to the economy. but this means little to the 25 million americans who can't find work, or are working less than they would like. the political implications are clear. after the election, government will be divided and the political discourse even more extreme. the result?

there won't be much, if any, new economic policymaking in the next congress. this has an upside; it will give everyone time to adjust to all the policymaking done in the last congress. health care and financial regulatory reform are forcing epic changes in wide swaths of the economy. figuring out how all the moving parts of these reforms work, and keeping up with all the other loud debates regarding such things as energy and immigration policy, have made businesses very edgy. as the policy uncertainty fades, businesses will become more comfortable about hiring and investing again. however, there are huge potential downsides if policymakers can't find common ground. what if the recovery unravels back into a double-dip recession, or perhaps even more worrisome, if global investors lose faith that we have the will to address our daunting long- term fiscal problems? here's hoping for a bit of luck. this is mark zandi. >> tom: that's "nightly business

report" for monday, october 4. i'm tom hudson. >> susie: good night tom. i'm susie gharib. good night everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by:

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