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JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, whose bank had promised to build a European headquarters in London, told U.K. Chancellor of the Exchequer Alistair Darling a 50 percent tax on bonuses would unfairly penalize the U.S. lender, a person close to the firm said.

Dimon reminded Darling that JPMorgan never took a U.K. bailout and said plans to build a European headquarters at Canary Wharf show the New York-based company’s commitment to London, the person said. JPMorgan, the second-largest U.S. lender by assets, may scrap its Canary Wharf project because of the bonus tax, the Financial Times reported, citing an unidentified bank executive.

Financial firms may face higher costs after Darling said on Dec. 9 he’d impose a 50 percent tax on discretionary bonuses greater than 25,000 pounds ($40,000). European and U.S. regulators imposed pay curbs after the world’s financial firms ran up $1.7 trillion in losses and writedowns during the global crisis.

“Jamie is quite a controlled character, so this is an example of the fury that has been created,” said Stuart Fraser, the head of policy for the City of London, the financial district’s lobby. “There is a real sense of indignation and anger about this tax.”

The tax may apply to compensation for about 20,000 people with the cost imposed on employers. During the call, Dimon, 53, mentioned that JPMorgan has paid U.K. taxes and reminded Darling of plans to spend about $2.4 billion on the Canary Wharf project, according to the person, who declined to be identified because the discussions were private.

U.K. Defends Tax

The conversation with Darling was reported yesterday by the London Telegraph. JPMorgan spokesman David Wells declined to comment. A U.K. Treasury spokesman yesterday defended the tax as fair because it would apply to all banks and said he couldn’t confirm the telephone conversation with Dimon.

“The government cannot allow itself to be blackmailed,” Liberal Democrat Vince Cable said today in an e-mailed statement.

Financial firms are threatening to leave the U.K. because they say increased taxes and regulation make London less attractive. Tullett Prebon Plc, the inter-dealer broker, said it will help employees relocate.

BlueCrest Capital Management Ltd., a London-based hedge- fund firm that oversees about $15.4 billion, plans to open a Geneva office, a person familiar with the situation said last month. As many as 50 of BlueCrest’s 300 employees in London may move, the person said.

Deutsche Bank, Nomura

Deutsche Bank AG CEO Josef Ackermann said on Dec. 12 that Germany has a “comparative advantage” over other financial hubs because it doesn’t plan to tax bonuses. The Frankfurt-based bank said it plans to spread the costs of the U.K. bonus tax to its employees worldwide.

Nomura Holdings Inc., the Tokyo-based bank that bought the U.K. operations of the collapsed Lehman Brothers Holdings Inc., has no plans to reconsider its new City of London headquarters.

Nomura, which in August signed a 20-year lease for a 525,000-square-foot (48,774-square-meter) building overlooking the River Thames, will move into new offices in July, spokesman Patrick Meyer said in London today.

European Alternatives

The bonus levy forced Dimon to consider, “Do we want to be in a more tax-friendly, corporate-friendly environment?” said Jeff Harte, an analyst in Chicago for New York-based Sandler O’Neill & Partners LP. “There are opportunities all over Europe. There are a lot of cities that could handle operation hubs.”

JPMorgan agreed to pay about $349 million in November 2008 for land in London’s Canary Wharf financial district to build a 1.9 million-square-foot (176,500-square-meter) tower.

Under the agreement with Canary Wharf’s owners, who will build the offices, JPMorgan can scale back the size of the project. The planned headquarters will house JPMorgan employees from seven other buildings after the bank scrapped plans to build an office in London’s main financial district.

If construction is delayed or canceled, JPMorgan will have to pay a 76 million-pound fee to developer Canary Wharf Group Plc, according to a November 2008 statement when the deal was announced. The bank will be responsible for paying for completed work including design, planning and infrastructure, the statement said.

Banks’ ‘Sticks’

Shifting business centers elsewhere is “one of the sticks they’ll use to try and fight this legislation, but in the end how realistic is it?” said Joe Sorrentino, managing director at executive compensation consultant Steven Hall & Partners specializing in financial services. “This is a people business. How do you get your talent, if they’re U.K-based, to move to other countries?”

The U.K. Treasury is working with banks to identify employees who are excluded from the tax, and Darling said Dec. 16 he will resist calls to change the policy. Banks can’t avoid the levy by arguing that some activities aren’t defined as banking, he said.

Shares of Songbird Estates Plc, which controlled more than half the buildings in the Canary Wharf estate, were little changed at 157 pence at 3:04 p.m. in London trading. A spokesman for Songbird declined to comment. JPMorgan’s stock fell 4 cents to $41.68 at 12:43 p.m. in New York Stock Exchange composite trading.

“It comes as no surprise that the recent, knee-jerk and ill-thought-out tax grab by government to punish bankers is causing some of our most important institutions to consider their options,” said Mayor of London Boris Johnson. “This should act as a strong wake-up call to our leaders that their policies could seriously threaten our competitiveness.”

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The U.S. Treasury Department said Thursday that it will remove the caps on assistance to Fannie Mae and Freddie Mac for the next three years to alleviate market concern about the effect of limited government assistance.

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each in backstop capital from the Treasury. Under the new deal, these caps can rise as needed to cover net losses over the next three years.

Fannie Mae and Freddie Mac now are using a combined $111 billion of the total $400 billion in available assistance. Treasury Department officials said they did not expect the companies to need assistance beyond what is available under the current caps, barring significant deterioration in the economic outlook.

Thursday’s announcement "should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis," the Treasury said in a statement in Washington.

The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolio of retained mortgages. Previously, the companies were instructed to shrink their portfolios at a rate of 10 percent a year. Now, they will be required to keep their portfolios below a maximum limit, currently $900 billion, that will fall by 10 percent a year.

This means they will not need to take immediate action to reduce their holdings and could allow them to rise payday loans for bad credit. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.

The Treasury said Thursday that it is ending its mortgage- backed security purchase program as of Dec. 31, after $220 billion in purchases. The government also is eliminating a short-term credit facility for the two companies and the Federal Home Loan Banks that was never used.

EXECUTIVE PAY

The two chief executives of Fannie Mae and Freddie Mac could get paid as much as $6 million for 2009, despite the companies’ dismal performances this year, which cost taxpayers more than $100 billion.

Fannie’s CEO, Michael Williams, and Freddie CEO Charles "Ed" Haldeman Jr. each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet performance goals, according to filings with the SEC on Thursday.

The packages were approved by the Treasury and the Federal Housing Finance Agency, which regulates Fannie and Freddie.

The Associated Press contributed to this report.

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WASHINGTON – A U.S. federal appeals court has upheld a US$290-million judgement against Microsoft Corp. in a patent case launched by Toronto-based i4i Inc.

The ruling also includes an injunction, set to go into effect Jan. 11, that would prevent the sale of at least some versions of Microsoft's popular Word word processing software.

The Tuesday decision was on an appeal Microsoft launched against a verdict returned by a Texas jury in favour of i4i . The jury found recent versions of Microsoft Word infringed on a software patent.

I4i sued Microsoft (NASDAQ:MSFT) over the way Word 2003 and Word 2007 customize XML, or extensible markup language, used in encoding and displaying information.

The injunction prevents Microsoft from selling Word products that have the capability of opening an XML file containing custom XML.

Kevin Kutz, Microsoft's director of public affairs, said the world's biggest software company is "moving quickly to comply with the injunction."

Kutz said the injunction "applies only to copies of Microsoft Word 2007 and Microsoft Office 2007 sold in the U.S. on or after the injunction date of Jan. 11, 2010."

"Copies of these products sold before this date are not affected," he added.

"With respect to Microsoft Word 2007 and Microsoft Office 2007, we have been preparing for this possibility since the District Court issued its injunction in August 2009 and have put the wheels in motion to remove this little-used feature from these products," he said.

"Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for U.S. sale and distribution by the injunction date.

"In addition, the beta versions of Microsoft Word 2010 and Microsoft Office 2010, which are available now for downloading, do not contain the technology covered by the injunction."

Kutz also said Microsoft was considering it legal options, “which could include a request for a rehearing by the Federal Circuit Court of Appeals en banc or a request for a writ of certiorari from the U.S. Supreme Court."

– With files from The Canadian Press

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Stocks closed sharply lower Thursday after Greece received another credit downgrade and the dollar rose on the U.S. central bank’s cautious comments.

The Dow Jones industrial average (INDU) fell 133 points, or 1.3%. Declines were broad based, with 28 of the 30 Dow components ending lower.

The S&P 500 index (SPX) lost 13 points, or 1.2%. The Nasdaq composite (COMP) slipped 27 points, or 1.2%.

The stock slump came as the dollar rebounded 1.3% against the euro, to its highest levels since September. The greenback was also up sharply on the pound and slightly higher against the yen.

The dollar jumped Thursday for two reasons, according to Craig Peckham, strategist at Jefferies & Co. First, he said, were the "continuing jitters" after the Federal Reserve on Wednesday left interest rates unchanged near 0%, saying weakness would remain for some time. Adding to those fears were reports that Greece has been downgraded by Standard and Poor’s.

S&P’s move came after health care companies complained that the country was behind on payments related to its public health system, and it follows Fitch Rating’s downgrade of Greece on Dec. 8.

Marc Chandler, chief foreign exchange strategist for Brown Brothers Harriman, said those downgrades and persistent worries about the economy are driving up the dollar — and these concerns could carry extra weight amid "very thin" volume ahead of the holidays.

"Santa Claus is giving a little present to people like me, who are dollar bulls," Chandler said.

Despite posting gains early in the session, stocks ended mixed Wednesday after the Fed’s interest rate announcement.

Financials take a hit: The slump slammed several bank shares, with Citigroup (C, Fortune 500) closing down 7.5%, American Express (AXP, Fortune 500) off 2% and JPMorgan Chase (JPM, Fortune 500) down 2.6%.

According to reports, the Treasury canceled plans to start selling off part of its 34% stake in Citi after its offering of 5.4 billion shares of common stock drew weak demand.

The offering was part of a plan Citi announced late Wednesday, in which the New York-based lender said it intends to raise $20.5 billion in the stock market in a plan to pay back its bailout funds.

"The market is struggling to absorb these staggering amounts of new issue," said Jefferies’ Peckham. "Marry that with the overriding theme of caution, and investors will be nervous."

Bank of America (BAC, Fortune 500) said late Wednesday it appointed senior executive Brian Moynihan as its new chief executive officer. Moynihan is currently the president of consumer and small business banking high risk personal loans. Exiting CEO Ken Lewis surprised the board of directors when he announced plans to retire in September. Shares were down 1.1%.

Economy: The Labor Department reported jobless claims rose unexpectedly last week, jumping by 7,000 to 480,000. Analysts predicted a decline to 465,000 new claims.

The November index of leading economic indicators, from the Conference Board, rose 0.9% — beating expectations of a 0.7% jump.

The Philadelphia Fed index, a regional read on manufacturing, far surpassed expectations. The reading jumped to 20.4 in December, the highest since April 2005, from 16.7 in November. Analysts expected a decline to 16.0.

In Washington, a Senate Banking committee voted 16-to-7 to confirm Ben Bernanke for another four-year term running the Federal Reserve.

Companies: Before the start of trading Thursday, package-delivery firm FedEx (FDX, Fortune 500) reported earnings of $1.10 per diluted share, down from $1.58 one year ago.

FedEx issued cautious guidance for the third quarter of 50 to 70 cents per diluted share. That fell short of forecasts of 84 cents per share, and the stock price lost 6.1%.

After the market close Thursday, Oracle (ORCL, Fortune 500) reported a profit of 39 cents a share versus 34 cents a year ago. The software company’s results beat analyst expectations of 36 cents per share.

Also after the bell, Nike (NKE, Fortune 500) reported a second-quarter profit of 76 cents a share, down from 80 cents a share. Analysts were looking for 71 cents a share.

Smartphone maker Palm (PALM) reported a wider-than-expected loss of 37 cents per share in its second fiscal quarter.

Palm’s rival, Blackberry maker Research in Motion (RIMM), earned $1.10 per share, up from 69 cents a year ago. RIM shares were up about 11% in after-hours trading.

World markets and commodities: Stocks in Asia ended mixed, with Tokyo’s Nikkei index falling 0.13% and Hong Kong’s Hang Seng index off 1.22%. European indexes settled lower.

Crude oil for January delivery fell 1 cent to settle at $72.65 a barrel, while gold for February delivery plunged $28.80 to end at $1,107.40 an ounce.

Bonds were higher, with the benchmark 10-year yield slipping to 3.49% from 3.59% late Wednesday.

Market breadth was negative. On the New York Stock Exchange, losers beat winners almost three to one on volume of 1.7 billion shares. On the Nasdaq, decliners topped advancers almost three to one on volume of 1.9 billion shares. 

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U.K. unemployment unexpectedly fell for the first time since February 2008, adding to signs the economy is emerging from its deepest recession in at least three decades.

Claims for jobless benefits declined by 6,300 in November to 1.63 million, the Office for National Statistics said in London today. The median forecast in a Bloomberg News survey of 26 economists was an increase of 12,500. The number of people seeking work in the three months through October rose 21,000 to 2.49 million, the smallest gain in 17 months.

The figures are a boost for Prime Minister Gordon Brown, who is counting on an economic revival to lift support for his Labour Party before a general election due by June. The economy has lost more than 600,000 jobs since the recession began, with the axe falling hardest on people under the age of 24.

“This a real shot in the arm,” Howard Archer, chief European economist at HIS Global Insight in London, said by telephone. “It’s very encouraging. However, I don’t think it’s an end for the rise in unemployment, which may continue until the end of next year. There’s a still a danger the economy may relapse next year, so I don’t think it’ll have a big impact on the Bank of England’s view of things things.”

Market Reaction

The pound rose after the report and was trading at $1.6334 as of 10:38 a.m. in London compared with $1.6240 yesterday. The 10-year gilt yield was little changed on the day at 3.892 percent.

The number of people in work rose by 53,000 to 28.9 million in the quarter through October, the biggest increase for 17 months, the statistics office said. In October, the number of claims rose by 5,900 instead of the 12,900 originally reported. The claimant rate in November was unchanged at 5 percent.

“It is encouraging that there are more people in jobs as we get near to Christmas, and also that so many more young people have been helped,” Work and Pensions Secretary Yvette Cooper said instant payday loan. “But it is still tough for a lot of people, and we still expect unemployment to increase again. So we are determined to do more.”

Unemployment has risen by less than officials initially predicted as companies froze pay and cut working hours to retain skilled labor needed once the economy returns to growth.

Jobless Rate

At 7.9 percent, the U.K. jobless rate is below the 10 percent in the U.S. and the 9.8 percent euro-region average. Many economists expect it to peak below 10 percent, compared with the postwar high of 11.9 percent record in 1984. Treasury forecasts published last week show the level of jobless claims is close to a peak.

The opposition Conservative lead in opinion polls has shrunk in recent weeks to less than 10 percentage points after Brown stepped up attacks on bankers and portrayed the Conservatives as the party of the rich. The margin is narrow enough to deny the opposition an outright majority at the election.

The labor market is likely nevertheless weigh on the wider economy, and companies may be slow to resume hiring as they initially increase the hours of existing workers, economists say.

Average earnings growth picked up to 1.5 percent in the quarter through October from 1.4 percent, with the rate excluding bonuses unchanged at 1.7 percent.

The fragility of the recovery was underlined earlier this month when Corus Group Ltd., the European unit of India’s Tata Steel, said it will cut 1,700 jobs at its Teeside plant in northeast England after demand for metal dropped. Diageo Plc, the world’s biggest liquor-maker, is also cutting jobs after closing facilities including a packaging plant and a distillery.

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Australia’s economy probably expanded in the three months through September for a third straight quarter, boosted by government spending on roads, ports and schools.

Gross domestic product gained 0.4 percent from the second quarter, when it rose 0.6 percent, according to the median estimate in a Bloomberg News survey of 17 economists. The economy probably grew 0.7 percent from a year earlier, the survey showed. The Bureau of Statistics will release the GDP report tomorrow at 11:30 a.m. in Sydney.

Australia’s economy, one of the few to skirt the global recession, grew in the third quarter and will accelerate in 2010 as consumer confidence gains and demand rises for exports such as iron ore, the central bank said today. Faster growth adds to pressure on Governor Glenn Stevens to raise borrowing costs in February after this month becoming the only policy maker in the world to increase interest rates three times this year.

“The economy is gaining good momentum into the end of the year and we continue to expect a further Reserve Bank rate adjustment in February,” said Paul Brennan, an economist at Citigroup Inc. in Sydney.

Prime Minister Kevin Rudd’s government is spending A$22 billion ($20 billion) on ports, roads, hospitals and schools, adding 0.8 percentage point to GDP in the third quarter, Citigroup estimates.

Global Rebound

Tomorrow’s report may add to global evidence of an economic rebound. Europe’s economy emerged from its worst slump in more than six decades in the third quarter, expanding 0.4 percent from the previous three months, a report showed on Dec. 3. The U.S. economy grew at a 2.8 percent annual pace.

Australia’s economy is expanding faster and generating more jobs than the government and central bank forecast at the start of the year as China’s demand for raw materials including iron ore, coal and gas prompts mining and energy companies such as BHP Billiton Ltd., Woodside Petroleum Ltd. and Santos Ltd. to increase investment and hire workers.

Treasurer Wayne Swan last month forecast GDP will rise 1.5 percent in the 12 months through June 30, 2010, compared with a May prediction of a 0.5 percent contraction. The central bank says the economy will grow 2.25 percent this fiscal year and 3.25 percent in 2010-11.

Employers added 99,500 workers between the start of September and Nov No teletrak payday loan. 30, the biggest three-month hiring surge in three years, a report showed last week. The jobless rate fell to 5.7 percent from 5.8 percent.

Gas Deal

Chevron Corp. said this month it has signed a deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone venture in Western Australia. The project, estimated to be worth $82 billion, is forecast to generate 6,500 jobs during construction.

It is in addition to the $39 billion Chevron-led Gorgon gas venture, also in Western Australia, which is forecast to create 10,000 jobs when construction starts early next year.

Stronger economic and jobs growth will increase Governor Stevens’s scope to increase borrowing costs next year. He raised the overnight cash rate target by a quarter percentage point on Dec. 1 to 3.75 percent, adding to similar moves in October and November.

The central bank said today its decision to raise borrowing costs two weeks ago gives it more flexibility in future.

“Members agreed that, if developments unfolded as currently expected, monetary policy would need to be adjusted further over time to lessen the degree of stimulus,” officials said in minutes released today of their Dec. 1 gathering.

‘Appropriate Stance’

“That adjustment would not be intended to slow demand compared with the current forecast path, but aimed simply at keeping the stance of policy appropriate for improving economic conditions.”

Figures available at the time of the central bank’s board meeting two weeks ago “suggested a rise in GDP for the quarter,” today’s minutes added.

Investors are betting there is a 62 percent chance of a quarter-point increase in the benchmark lending rate to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:02 p.m.

The statistics bureau, which normally publishes third- quarter GDP figures in the first week of December, delayed publication of the report this year by two weeks as officials adopt new accounting standards.

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For six months, I attended every "investment seminar" offering a free lunch that I found advertised in the newspaper or in postcards I got in the mail.

I soon realized I would learn little about investing but a lot about high-pressure sales tactics for high-commission products. Although I had no intention of buying anything, I continued attending to gather material for my columns.

After a while, the seminars became so predictably unpleasant that I stopped going. Now, based on a study by AARP and the North American Securities Administrators Association, I see that little if anything has changed.

"Many people go to these seminars hoping to learn about ways to create a more secure retirement, but instead are pitched financial products that are fraudulent or unsuitable for them." said Jean Setzfand, director of financial security at AARP, the advocacy group for people 50 and over.

I must emphasize that some investment seminars are indeed educational. I’ve attended many, including several sponsored by investment firms and featuring talks by economists and money managers. My main concern — and that of regulators — is with solicitations for "free lunch" seminars that prey on seniors’ fears by implying they risk financial catastrophe if they don’t do what the presenter says.

An estimated 5.9 million Americans 55 and older have attended a seminar offering a free lunch or dinner in the past three years, with mail as the most common method of solicitation. Of those solicited by mail or e-mail, 27 percent have received 10 or more invitations.

In response to such solicitations, AARP, in collaboration with NASAA, which is an organization of state securities regulators, launched a "Free Lunch Monitor" program in October 2008. Armed with checklists, 180 volunteer monitors attended these seminars and reported what they saw Internet Payday loans. (To learn more about the program or to volunteer, see www.aarp.org/nofreelunch.)

The volunteers’ findings, together with the responses to a telephone survey of 1,012 Americans 55 and older, are summarized in a new study titled "Protecting Older Investors: 2009 Free Lunch Seminar Report."

For example, 78 percent of people who attended seminars expected they would focus on opportunities to learn more about financial issues. However, once at the seminar, half said they were asked for personal information; 46 percent said the presenter tried to make a follow-up appointment at their home; and 39 percent said the presenter tried to sell them something during or after the seminar.

Many of the seminars focused on annuities. Two-thirds of the volunteer monitors said the presenter did not discuss surrender charges or tax penalties if annuities are cashed in early, and 48 percent said the presenter did not discuss any annuity risks.

Attendees were consistently promised the products were low risk and would yield high rates of return (54 percent of the volunteer monitors said they were promised returns of 7 percent or more. I assure you no annuity today can guarantee that).

This is definitely not a knock against annuities. In fact, I own several. But these can be complex products, and there are many types of annuities, each with its own risks.

"Low risk, high reward is a red flag warning for possible investment fraud," said Denise Voigt Crawford, NASAA president. "I encourage all seniors to investigate before they invest in any offer served at a free lunch seminar," including checking the presenter’s credentials with securities regulators.

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Hawaii Biotech, Inc. announced Friday that it will file for Chapter 11 reorganization in U.S. Bankruptcy Court in Honolulu.

The move appears to be an attempt to stave off an effort by one the company's largest shareholders to gain control of the company at the shareholders’ meeting scheduled for Dec. 16.

The privately held biotech company said in a news release that the filing is intended to allow it “to continue its current and planned human clinical trials, keep its staff in place, pursue funding and protect current investors.”

The Aiea company, founded in 1982, has not previously hinted at financial troubles. Over the past eight years, it has raised more than $55 million in federal and state research grants and more than $36 million in private equity financing.

Hawaii Biotech said its president and CEO, Elliot Parks, will continue to manage the company and that the company has lined up more than $2 million from local investors to continue operations.

The company’s bankruptcy filing, which lists assets and debts, was not immediately available from the court.

Executives of Acuvax Ltd., an Australian company that owns 28 percent of Hawaii Biotech, has claimed that Hawaii Biotech’s current management team, led by Parks, has not been aggressive enough in generating income from its vaccines for West Nile virus and dengue fever no fax payday loan.

Acuvax CEO William Ardrey, who holds a seat on the board, has said he wants to try to oust members of Hawaii Biotech’s five-member board, including Parks and Debra Guerin Beresini, co-founder of Silicon Valley-based International Venture Fund.

Acuvax’s main shareholder, another Australian company, owns a 12 percent interest in Hawaii Biotech, for a combined 40 percent stake in Hawaii Biotech.

“Our goal is to continue to build on our recent clinical successes and create value for all shareholders,” Parks said in a prepared statement. “We believe that this reorganization is the best plan of action to attract additional capital, to keep Hawaii Biotech local and to continue progressing through our clinical trials.”

Under Parks’ leadership, Hawaii Biotech, which has 23 full-time employees, entered into human clinical trials for West Nile and dengue fever vaccines within the past two years.

Late last year, Hawaii Biotech completed the first of three phases to prove the safety and efficacy of its proprietary vaccination for West Nile virus.

Meanwhile, in August, the company started the first phase of a clinical safety trial for its dengue vaccine, and said results are expected within a year.

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Countries with a large government role in the economy don’t do significantly better in avoiding deep recessions than those with smaller public sectors, the Bank for International Settlements said.

While data from the latest recession suggest government spending helps stabilize economies, the effect seems to have weakened since the mid-1980s, according to the study published in the Basel, Switzerland-based BIS’s quarterly report. Openness to trade and monetary policy may be gaining in importance, the study said.

“Government size does not appear to reduce the depth of recessions,” authors Madhusudan Mohanty and Fabrizio Zampolli wrote.

The research was prompted by debate after the global financial crisis and recession about “the link between government size and output volatility,” according to the BIS. The study looked at data since 1970 from countries in the Organization for Economic Cooperation and Development.

While countries with “larger governments” such as Denmark and Norway had a smaller average loss of output over time, some with large governments, such as Sweden, have had more severe recessions, the study said.

Recessions have become “considerably longer” in the past 25 years and government spending to counter declining growth may deepen the boom-and-bust cycle, according to the BIS, which acts as a clearinghouse between central banks.

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General Electric — the last of the giant diversified conglomerates — has adopted a strategy that was once unthinkable: narrowing its focus. It’s a risky move for a company that had counted on its diversity as a hedging tool. But it’s also one that may pay off in spades.

By selling off media and entertainment division NBC Universal to Comcast (CMCSA, Fortune 500), GE is left with its core infrastructure business, which includes energy, transportation and health care units, as well as finance arm GE Capital and some consumer and industrial businesses. GE Chief Executive Jeffrey Immelt said on Thursday that the Comcast deal will allow GE to "play offense" by reinvesting in infrastructure, which performed very well during the recession.

That would mark a nice shift from GE’s defensive play, which was led by its flagging media division. NBC Universal’s profit has plunged 27% so far in 2009, compared to a 14% rise in earnings from its energy infrastructure businesses. Unlike NBC (and GE Capital for that matter), GE’s infrastructure unit helped the company weather the economic storm.

GE (GE, Fortune 500) bought NBC in 1985 for $6.3 billion to act as a hedge against its industrial businesses. With businesses in seemingly every sector, GE had counted on that part of its company to always do well no matter what the economic climate.

But analysts say holding onto NBC became too risky for GE, as the changing media landscape made it difficult to know how to invest. Internet media has soared, but it remains unclear how it will be monetized. Cash flow margins at NBC’s cable networks have been solid, but its broadcast channels have just a slim 5% margin.

"They’re getting out of a market at a good price where it is unclear whether they’re going to succeed," said Ed Zabitsky, analyst with ACI Research. "When you’re uncertain about a unit and you can sell it for a tremendous amount, you can take out a tremendous amount of risk."

Dialing back risk, dialing up growth. Many say GE has taken on enough risk by holding onto its finance unit, GE Capital. Once a driver of 40% of GE’s operating profit, GE Capital has gotten slammed by the subprime mortgage crisis and now contributes just more than 14% of GE’s earnings.

Analysts say that the main reason GE isn’t shopping GE Capital around is that GE won’t be able to get top dollar for the unit because of the lingering effects of the credit crisis.

Also, unlike NBC, GE Capital actually has some synergies with its core business. In addition to its mortgage and lending business, GE Capital finances the parent company’s infrastructure purchases, and it offers financing to GE’s vendors as well no fax payday loans.

Even in its heyday in the 1990s, when NBC was making upwards of $400 million a year for GE, the media company had no other synergies with GE’s other businesses. Now that NBC is slumping, GE decided it was the right time to unload it.

"As management reshapes GE, there’s clearly going to be a focus on the classic infrastructure businesses that have been its cash cows, namely energy, transportation, health care," said Nick Heymann, analyst at Sterne Agee & Leach. "Everything else that’s left will be a facilitator for one of those core businesses."

Heymann said the businesses that GE will decide to hold onto will all be focused on growth. GE believes that its infrastructure and related businesses have the best chance to succeed because of those units’ strong positions in the fast-growing emerging markets.

"This deal gives us tremendous flexibility at exactly the right moment and time," said Immelt on a conference call with investors. "There are lots of global opportunities in infrastructure as we think about the company going forward."

The death of the conglomerate. Experts say GE’s decision to unload risk and focus on what it does best puts a nail in the coffin of the conglomerate idea.

"The whole idea of conglomerate is really lousy," said Peter Cohan, a venture capitalist, management consultant and GE shareholder. "You can’t hedge cash flows of one business from another, because they can’t predict how they’ll interact."

Cohan said that over time, companies found the notion that they could offset risk from one industry by owning a business in another was overly simplistic, as there is no way to ensure that one business will succeed when another fails.

Instead, according to Zabitsky, GE and other companies are now opting to increase their capital reserves to offset risk instead of making non-core acquisitions.

But not everyone agrees that GE’s strategy is the best.

"GE had enough balance in its business that if something got disrupted, there would be something else there to save the day," said Rick Munarriz, senior analyst at The Motley Fool. "I don’t necessarily agree with its decision to trim down and focus on its core. This isn’t the time to shrink, this is the time to take advantage of everyone else shrinking." 

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