The government said it was giving banks more money so they could make more loans. Dollars paid to shareholders don't serve that purpose, but Treasury officials say that suspending quarterly dividend payments would have deterred banks from participating in the voluntary program.

Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends -- or conversely, why banks that need government money are still spending so much on dividends.

"The whole purpose of the program is to increase lending and inject capital into Main Street. If the money is used for dividends, it defeats the purpose of the program," said Sen. Charles E. Schumer (D-N.Y.), who has called for the government to require a suspension of dividend payments.

The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.

Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.

The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury's investment over the initial three-year term.

"The terms of our capital purchase program were set to encourage participation by a broad array of financial institutions so they strengthen their financial positions," Treasury spokeswoman Michele Davis said.

The Treasury's approach contrasts with decisions by foreign governments, including Britain and Germany, to require banks that accept public investments to suspend dividend payments until the government is repaid. The U.S. government similarly required Chrysler to suspend its dividend payments as a condition of the government's 1979 bailout.

The legislation passed by Congress authorizing the Treasury's current bailout program is silent on the issue.

The first nine participants were major banks, some running short on capital, that were told by Treasury officials earlier this month to sign on to the program for the good of the country. Their major shareholders are primarily institutional investors, such as pension funds and mutual funds, although a few wealthy individuals hold large stakes, such as Warren Buffett in Wells Fargo and Prince Alwaleed bin Talal in Citigroup.

Several banks are on pace to pay more in dividends than they get from the government. The Bank of New York Mellon got $3 billion from the government on Tuesday. It will pay out $275 million to shareholders this quarter, and a projected $3.3 billion over the next three years. A spokesman declined to comment.

Google Settles with Authors

The search giant will pay $125 million to settle lawsuits stating it violated copyright law by scanning millions of books

Getty Images

By Hardy Green

After more than two years of negotiation, Google (GOOG) has settled lawsuits filed by the Authors Guild and five publisher members of the Association of American Publishers against a Google program that has scanned millions of library books.

The agreement, subject to approval by the U.S. District Court for the Southern District of New York, provides for the establishment of a book-rights registry, through which scanned books can be viewed in part or in whole and payment made to copyright holders. As part of the deal, Google will pay $125 million to rights-holding plaintiffs and to cover legal fees. Of that amount, $30 million will go to set up the registry.

Google ran afoul of book publishers and authors when some of the libraries participating in its book-scanning program opted to scan full texts of copyrighted books (BusinessWeek.com, 10/20/05). Publishers argued that scanning an entire book without permission, and storing it on a Google server, violates copyrights. Google argued that because it's creating what amounts to a massive card catalog and would let users view only brief excerpts of books, it shouldn't have to get express permission to scan the books.

"A 21st-Century Solution"

All parties to the agreement expressed enthusiasm about the settlement during a conference call with reporters. "This could be the biggest book deal in U.S. publishing history," Authors Guild Director Paul Aiken said. "Millions upon millions of books will find a new home among readers online."

"This is an innovative, 21st-century solution," added Association of American Publishers Chairman and Bertelsmann Co-Chairman Richard Sarnoff. "The registry will function as an authoritative rights-holder database, distribute money, and mediate disputes."

David Drummond, Google's chief legal officer, noted that "7 million books are now searchable through Google Book Search, and we're looking forward to many times that number."

Payments Split Three Ways

The registry will manage two types of online book searches. Individuals will continue to view samples of in-copyright books much as they can today, and purchase the work online. Institutions such as colleges and universities can pay for subscriptions to the registry and have complete digital access to millions of scanned books. Participants in the conference call noted that the program will make it possible for small colleges and universities to have access to the trove of books in major research libraries at such institutions as the universities of California, Michigan, and Wisconsin, and Stanford University.

In all cases, payments will be split three ways, with Google getting 37% of the revenue and, after the subtraction of an administrative fee by the registry, the publisher and author splitting the remaining monies. Certain advertising revenues will also be shared with the rights holders, Drummond said, according to the same proportional split. But no ads will appear in the actual pages of books, he noted.

The registry is several months away from being a reality. Overall, the development seems likely to encourage the sale of books in bits and pieces, or "chunking," as the practice is coming to be known among book publishers, along with "transforming," or delivery of books in a variety of formats, including downloads to e-book readers or for print-on-demand. "The real victors are the readers," Google co-founder Sergey Brin said in a prepared statement. "The tremendous wealth of knowledge that lies within the books of the world will now be at their fingertips."

Lawsuits Date to 2005

The publisher plaintiffs, who filed suit against Google in October 2005, included Pearson Education, Penguin Group, John Wiley & Sons (JWA), Simon & Schuster, and the McGraw-Hill Companies (MHP), publisher of BusinessWeek. The Authors Guild class action was filed in September of that year.

On Saturday, Nov. 1, striking Boeing (BA) machinists will get a chance to vote on a proposed contract that could end a walkout that has halted plane manufacturing at the company since Sept. 6. Union leaders are crowing about the proposed four-year deal, calling it a victory for the workers. But management, while bruised, is walking away from the table with a few key wins, too.

For one, the company will be able to outsource as much work as it wants to on its new 787 commercial jet, the so-called Dreamliner that will be the most important plane in Boeing's lineup for the next decade or longer. The managers also exempted the planes and other products it makes in its defense operations from contract terms the International Association of Machinists & Aerospace Workers, or IAM, demanded.

"It was a pretty genuine compromise," says Paul H. Nisbet, an analyst with JSA Research in Malta, N.Y. "Boeing [managers] apparently held onto the right to run their business."

Just how much of a compromise will be something for workers to decide when they vote. IAM leaders, eager to sell the deal to their 27,000 striking workers, are pointing to the wage and benefit gains and job-security terms they've won.

Union Gains

"Our union has delivered what few Americans have—economic certainty and quality benefits over the next four years," said Tom Wroblewski, president of IAM's District 751 unit, which represents Puget Sound area workers. "In this round, we won the battle and made some significant gains."

The IAM was able to stave off changes management had wanted in health care and pension benefits, for instance. Boeing originally sought to shift some costs in medical care onto employees, but the new deal freezes the structure on the same terms as were adopted in a 2005 contract settlement. The union also forced the managers to back away from plans to deny a traditional "defined-benefit" pension plan to future workers and give them a 401(k) plan instead, and it in fact won increases in the traditional benefit. They also won wage increases of 5% in the first year, 3% in the second and third years, and 4% in the final year of the contract.

IAM leaders are pointing to a few other major gains:

•Some 2,200 facilities and maintenance employees have their job security guaranteed for the life of the contract.

•The IAM can compete for work that moves from one Boeing facility to another. If its members can do the work more cheaply than outsiders, they can get the work.

•Some 2,920 forklift drivers and other shipping personnel will not be laid off.

•Outside vendors must deliver products to IAM members in designated area, except for work on the 787.

BlackRock chairman and CEO Larry Fink

(Fortune Magazine) -- At 11 o'clock in the evening on Saturday, Sept. 13, Larry Fink was about to board a flight from New York to Singapore. The following Monday he was scheduled to meet with the managers of several Asian sovereign-wealth funds. For the head of BlackRock, one of the world's largest asset managers, this trip was a huge opportunity that could mean billions of dollars in new business.

Still, he knew that the next 19 hours would be a bad time to be unreachable. Just a few miles west of the airport, bankers and government officials were huddled in the offices of the New York Federal Reserve Bank to hash out the fates of three of the biggest financial institutions on Wall Street - namely, Lehman Brothers, AIG, and Merrill Lynch. Two of the troubled firms - Lehman Brothers and AIG - were BlackRock (BLK, Fortune 500) clients; Merrill Lynch was BlackRock's biggest shareholder.

Fink made one final call before boarding. "Can I get on this plane?" he asked a colleague inside the meetings at the New York Fed.

"You can go," came the response.

At that moment Fink thought Barclays (BCS) had agreed to buy Lehman. So he boarded. As Fink took off, he could see through his window the lights of lower Manhattan. He did not know it then, but it would be the last time he would see Wall Street - at least the one he recognized - in one piece.

When Fink landed in Singapore at 5 a.m. on Monday morning, he checked his BlackBerry and scanned the headlines: Lehman bankrupt, Merrill Lynch bought by Bank of America, AIG collapsing. "I felt like Charlton Heston landing on the Planet of the Apes," says Fink. "My world had transformed."

In that moment, Fink knew as well as anyone how treacherous the capital markets had become. As chairman and CEO of BlackRock, he had seen the hidden liabilities of just about every financial institution that would be pulled into this whirling vortex of doom.

AIG, Lehman Brothers, Fannie Mae, and Freddie Mac had all hired BlackRock over the past few months. As Fortune went to press, Treasury Secretary Hank Paulson had BlackRock on his short list to manage, well, your money - a chunk of the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP.

If Paulson and Federal Reserve chairman Ben Bernanke have been the public faces of the financial crisis, Fink has been its behind-the-scenes fixer and father confessor. The reason so many CEOs have kept him on speed dial in recent months is simple: No other firm is trusted to pick through the exotic securities infecting banks' balance sheets and place an accurate value on them.

At a time when the credit-rating agencies like Moody's and Standard & Poor's have lost face, BlackRock's valuations have become a kind of de facto Good Housekeeping seal of approval that buyers and sellers of distressed assets trust.

"I think of it like Ghostbusters: When you have a problem, who you gonna call? BlackRock!" says Terrence Keely, a managing director at UBS, who worked with BlackRock last spring to dispose of a troubled $20 billion portfolio of mortgage-backed securities (BlackRock unloaded it for $15 billion).

But before anyone organizes a ticker-tape parade for Fink, keep in mind that 25 years ago he was an early and vigorous promoter of the CMO (collateralized mortgage obligation). Today the CMO and other asset-backed securities have become the monsters responsible for the credit crisis.

BlackRock itself has not been unscathed: Its money market funds saw $50 billion withdrawn in the month of September. In the third quarter, assets in its fund-management business lost more than $100 billion, dropping from $1.4 trillion to $1.26 trillion. Its stock, trading at $113 on Oct. 23, is down 40% for the year.

"The market declines are so severe, BlackRock is not immune," says Fink, 55. "I've been in this business for 32 years, and in a 20-week period - from Bear Stearns's collapse until now - the landscape has changed so dramatically. It's very unsettling. Very disorienting."

So the question is, Can Fink stop this monster - and make a profit along the way?

To understand how BlackRock found itself at the center of the financial crisis, you need to understand Larry Fink's long, strange relationship with mortgage-backed securities. Fink sold his first CMO in 1983 while working as a bond trader at First Boston. He pitched this new product to Freddie Mac (FRE, Fortune 500) as a way for the company to offload $1 billion in mortgages.

Executives at Freddie agreed to let First Boston take mortgages, pool them, slice them, and sell them as securities. This hugely profitable offering made Fink a rock star at First Boston. Soon he was creating similar products for GMAC and other finance companies.

Back then the mortgage markets were insular. Commercial banks knew their borrowers, and investment bankers packaging loans knew the investors to whom they were selling the CMOs. But Fink's hot streak at First Boston ended in 1986 when his fixed-income desk got out of control.

"I lost $100 million in one quarter, and I didn't know why. And we made $130 million the quarter before, and I didn't know why we made so much money. So we should have been fired the quarter we made the money. The whole concept for BlackRock grew out of that experience at First Boston. I said, 'We are not going to live that again. We are going to have systems to analyze risk,'" Fink says.