Last April, Warren E. Buffett flew to Kansas City, Mo., to join Matthew K. Rose for a ride in a vintage 1930s railcar. Buffett, the billionaire investor from Omaha, and Rose, the chief executive of Burlington Northern Santa Fe (BN), munched on hamburgers and jelly beans as they chugged 430 miles up to Chicago. Along the way, they talked about Burlington Northern's unlikely turnaround and how the once-stalled railroad could build on its recent momentum.

Buffett's interest was more than academic. A year earlier, his company, Berkshire Hathaway (BRK), had acquired a 10.9% stake in Burlington, later increased to 18.5%, making it the company's largest shareholder. The railroad is the fourth-biggest public stockholding in the famous Buffett portfolio. "He told me very clearly that he doesn't care about what we do next quarter or next year," Rose recalls. But as encouraging as Buffett's long-term perspective was at the time, six months and one global financial crisis later, Burlington faces new obstacles.

U.S. freight railroads have recovered after decades of struggling to eke out profits—with Burlington leading the way—but the industry is heading into tougher times along with the rest of the American economy. High oil prices, which have given the railroads an advantage over rival long-distance trucking companies, are dropping fast. The voracious consumer appetites that have kept Burlington's freight cars stuffed with PCs and flat-screen televisions are shrinking. And lending remains tight, even for the comeback railroad sector. Rose has been forced to put some expansion plans on hold.

Still, unlike many corporate executives who seem shell-shocked by the financial turmoil, Rose sounds optimistic. He believes innovation will allow Burlington to continue to thrive, if at a slower pace.

THE OIL ADVANTAGE

Rose, a compact 49-year-old who once looked at railroads with scorn, argues that a more attentive manner with customers—basically, getting their loads delivered on time—will continue to win the loyalty of shippers such as overnight-package giant United Parcel Service (UPS). Marketing a 200-year-old means of moving freight as the greenest, most progressive way to get the job done will also help sell Burlington, Rose says. Longer term, new safety and monitoring technology could allow him to run trains closer together, increasing efficiency. "Our value to society is much bigger than our market valuation," he says. "The fundamentals of transportation in this country favor rail."

That market valuation—$29 billion—is nothing to sneeze at. Burlington's stock has risen 259%, to about $83, since Rose took over as president and CEO in 2000. The price has remained relatively steady amid the overall market's breathtaking decline. "Burlington, like the rest of the railroad industry, will definitely face challenges, at least on the volume side, in a full-blown recession," says Jason H. Seidl, an industry analyst with boutique investment bank Dahlman Rose. "But it should still be able to maintain its pricing power, as a large percentage of its business is not [facing tough competition from] other modes of transportation."

As bankers claw their way out of the credit crunch, they're likely to get a lot more curious about our ability to repay loans. To do that, they'll no doubt search for statistical correlations between financial risk and our behavior in different realms—as shoppers, students, even drivers.

Indeed, quantitative analysts in major banks and researchers at credit risk companies are hard at work looking for ways to understand borrowers better. The logical first step is to pore over more of our data. Clark Abrahams, chief risk officer at SAS, a large software company that creates analytic programs for the banking industry, suggests lenders may one day take into account lots of nontraditional metrics, such as whether the borrower has a good reputation on eBay (EBAY) or pays cell-phone bills on time before deciding whether to extend credit.

At first blush, it may seem odd that banks need more data on borrowers. After all, mortgage bankers and credit-card companies feasted on financial data during the lending spree that helped inflate the housing bubble. Lenders studied individuals' borrowing and payment patterns and stuffed mailboxes with microtargeted pitches for new loans and credit cards. But they focused their analysis on the borrowers' appetite for credit—not on people's ability to afford it or the risk that they would default. New risk models, analysts say, are sure to call for more financial data, including revenue projections for each borrower. In other words, they'll want to know more about how much we make and how we spend it.

Ranking You on Responsibility

Already, marketers, advertisers, and political consultants are harvesting mountains of data about people and building sophisticated mathematical models to predict their behavior. "If they're smart, [bankers] will be using these techniques to figure out each customer's risk, and to give them customized offers," says Dave Morgan, founder of Tacoda, a behavioral targeting advertising company bought last year by Time Warner's (TWX) AOL.

A hot spot of this type of data study is at the San Rafael (Calif.) research labs of Fair Isaac (FIC), creator of the widely used FICO credit risk scores. In the short term, Fair Isaac is sifting through financial data to calculate not only each borrower's risk, but also how much debt each one can take on.

Looking further ahead, Fair Isaac predicts that based on analysis of our data, we'll each have scores that can predict far more than our financial behavior. Fair Isaac research fellow Larry Rosenberger speculates that one day, each of us will be scored for broad values such as "responsibility." Such a score, still years away, could be used to appraise a person's worthiness for a whole range of benefits, from housing loans to employment in a nursery school to rates on car insurance. Colleges might even find it useful in admissions decisions.

Looking for a Broader Read

And how would data-crunching companies come up with such scores? That's where new sources of data come in. According to Fair Isaac CEO Mark Greene, research indicates that "bad people are bad people are bad people." In other words, their behavior in one domain predicts what they might do in another. People who get in traffic accidents and don't pay their taxes on time, Greene says, "are often bad credit risks."

This means that more of our lives—our school records, for example, or claims made on insurance policies—could provide the data for broader responsibility scores.

Already, a number of industries have used Fair Isaac's FICO credit risk score for a broader read on a person's responsibility. The FICO score is based on limited data regarding credit and payment history. But it turned out to be a predictor for auto and home insurance claims. And recently Rosenberger was stunned to see a study pointing to a new correlation: People who pay their bills on time seem more likely to stick to exercise regimens at the health club. Could losing weight boost a person's responsibility score?

What's Your eBay Status?

This type of scoring may sound menacing. What's to stop banks from using nontraditional statistics to unearth measures that divide society ethnically and regionally, leading to new forms of discrimination, so-called red-lining. Let's say that analysts find that people who get new treads on car tires default on loans more often than those who buy new tires. Chances are, most of those economical drivers make less money and live in low-income neighborhoods. If so, the behavior may point to a demographic grouping. "We have to ask ourselves as a society [whether] we want to be making those calls," Abrahams says.

For now, reaching beyond standard financial statistics remains a research project. Use of "responsibility" scores, for one, will depend on privacy rules and regulations that societies develop, Fair Isaac says.

What's more, some of these new scores and metrics could prove helpful to customers. In a climate of tight credit, banks may be reluctant to lend to those who lack traditional credit histories. Incorporating new data, from school grades to one's status on eBay, could open doors for first-time borrowers.

But chances are, banks will also use these new sources of data to figure out the rest of us, too

As they waited for Microsoft's Oct. 23 quarterly earnings call to begin, analysts and others were treated to a rousing rendition of the theme from The Lone Ranger. Nostalgia for the heroic masked avenger might seem ill-suited to these dour economic times. And yet while the software giant didn't exactly come to the rescue of worried investors, its results left many feeling reassured.

As other tech bellwethers have done, Microsoft has cut its forecasts and is having difficulty predicting the future. Still, the company's fiscal first-quarter numbers show the floor is not falling out from under global IT spending. Microsoft (MSFT) not only beat analysts' revenue and profit expectations in the period that ended in September, but its forecast for this quarter is based on an assumption that the recession will be mild.

Redmond (Wash.)-based Microsoft expects PC sales to grow a respectable 10% to 12% this yearend shopping season. "It's important to keep things in perspective," Chief Financial Officer Chris Liddell told analysts who asked for details on the depths of the slowdown. "We still see revenue growth."

Office Sales Remain Strong

First-quarter sales grew 9%, to $15.06 billion, beating analysts' expectations for $14.8 billion. Profit rose 2%, to $4.37 billion. Liddell said conditions "clearly deteriorated" as the credit crisis worsened in September, but didn't say by how much. Still, sales of server software used by corporations grew 18%, and sales of the Office productivity program remained brisk as well.

Microsoft showed surprising strength in its consumer-products division. While sales fell from last year, when the company benefited from blockbuster sales of the Halo 3 game for its Xbox console, sales exceeded Microsoft's expectations and profit rose to $178 million, from $167 million. Even Microsoft's beleaguered Internet business had good news. While losses nearly doubled, to $480 million, sales grew a respectable 15% despite a difficult online ad market.

Underscoring the difficulty of assessing a weakening spending environment, Liddell gave a wide range of forecasts for the first half of 2009. But even that range is more optimistic than might be expected. For example, Microsoft's worst-case scenario calls for sales of $64.9 billion in fiscal 2009. That's 2.55% short of analysts' consensus expectations for the year. Apple (AAPL), which has a reputation for setting low financial targets that it almost always beats, indicated on Oct. 21 that sales in the current quarter could fall 14% below consensus estimates. Networking equipment maker Juniper Networks (JNPR) said two days later that current-quarter sales might fall to $921 million, 4.7% below analysts' estimates.

Emerging Markets Are a Wild Card

Even if the country suffers from what Liddell described as a "deep recession," Microsoft will grow 7% for its fiscal year, compared with 18.2% for the year that ended in June. If the company's more positive forecast pans out, Microsoft will grow 10%. Liddell expects overall tech spending to stay in the black as well.

One wild card is emerging markets. Russia was the company's fastest-growing market for PCs in the past year. Liddell told BusinessWeek that while the market will slow, it will still grow at a double-digit pace. But turmoil in fast-growing countries is particularly hard to forecast. "It's a real threat that emerging markets will slow down in 2009," says Technology Business Research's Allan Krans.

As upbeat as Microsoft's predictions were, the company is taking precautions just in case. It plans to cut $500 million in operating expenses, partly by slowing hiring and trimming travel expenses. The company also will slow spending on construction of new data centers, server-packed facilities that handle Microsoft's own needs as well as the so-called cloud computing demands of outside customers.

Plenty of Cash on Hand

"It's a surprising thing to do, since they say they're betting the future on cloud computing," Krans says. At a technical conference for its software partners starting Oct. 27, Microsoft is expected to make a host of announcements about its plans to meld typical corporate IT operations with online services that will be doled out from Microsoft's own data centers.

If Microsoft comes across as confident, it's probably because the company can afford to be. It's got $20.7 billion in cash in the bank, and a business model based in large part on multiyear software licenses. That makes for much steadier revenue growth than relying on product sales

The problems are an unexpected consequence of the credit crisis, triggered indirectly by the collapse of American International Group, the insurance giant that U.S. taxpayers recently rescued from bankruptcy, officials said.

AIG had guaranteed deals between transit agencies and banks under which the banks made upfront payments that the agencies agreed to repay over time. But AIG's financial problems have invalidated the company's guarantees, putting the deals in technical default and allowing the banks to ask for all their money at once.

In Metro's case, the regional transit agency could face up to $400 million in payments, the system's chief financial officer, Carol Kissal, said in an interview yesterday. One bank, KBC Group of Belgium, has told Metro that it needs to pay $43 million by next week. Metro officials confirmed the details but declined to name the bank.

Transit agencies have met with the Treasury Department to request federal help. The government could back the deals instead of AIG, or it could change tax policy to help the banks and keep them from demanding payments.

Treasury spokesman Jennifer Zuccarelli declined to comment, except to say, "Treasury is aware of this situation."

Metro officials said they are prepared to fight the demands in court, forestalling an immediate effect. But they say suing one bank could impair the agency's ability to borrow money from other banks for much-needed capital improvements. Metro has said it needs more than $11 billion over 10 years to maintain, expand and improve train, bus and paratransit service. In the Washington region, more than 1.2 million trips are taken on Metrorail and Metrobus on an average weekday.

In addition to Metro, affected agencies include transit systems in Los Angeles, San Francisco, Atlanta and Chicago.

The deals in question are vestiges of an elaborate tax-avoidance plan that the IRS has since ended. It involves government agencies, such as Metro, helping private companies to avoid federal taxes.

Profit-making businesses are allowed to shelter income from taxes based on the declining value -- or depreciation -- of such equipment as rail cars. But transit agencies don't pay federal taxes, so they sold their rail cars and other equipment to banks, allowing the banks to shelter income while "their" rail cars depreciated. Then the transit agencies leased the cars back from the banks at a discount that effectively split the value of the tax break with the bank. Metro said it used the money for capital improvements, including buying rail cars.

Metro made 16 such deals, primarily with U.S. banks, between 1997 and 2003, selling 600 rail cars worth more than $1.6 billion and making $100 million.

All of the deals were approved by the Federal Transit Administration. Transit officials say they were encouraged by the government to pursue the tax deals.

'It's payback time,' banks warned in threat letters

Letters containing white powder that were sent to more than 50 financial institutions warned that "it's payback time," the FBI said Thursday.

Officials said most of the powder-laced letters were sent to branches of JPMorgan Chase.

"Steal tens of thousands of people's money and not expect repercussions. It's payback time. What you just breathed in will kill you within 10 days. Thank [word redacted] and the FDIC for your demise," said one letter released by the FBI on Thursday.

Most of the letters contained a powder that the FBI said is harmless.

But sending the letters is "a serious crime," even if they are a hoax, FBI spokesman Richard Kolko said in a statement.

More than 50 letters were received this week at financial institutions in 11 states and the District of Columbia, the FBI said.

The letters were all sent from Amarillo, Texas, to branches of Chase Bank; the Federal Deposit Insurance Corp., which insures bank deposits; and the U.S. Office of Thrift Supervision, a regulatory agency. Not all the letters contained exactly the same wording, the FBI said.

The U.S. Postal Inspection Service is offering a reward of up to $100,000 "for any information

The FBI, U.S. postal inspectors and state and local authorities are investigating, resulting in "a drain on resources" for those agencies, Kolko said.

"Law enforcement will continue to work to identify and arrest those responsible," Kolko said .

As of Thursday, financial institutions in New York, New Jersey, the District of Columbia, Ohio, Illinois, Colorado, Oklahoma, Georgia, Texas, Virginia, California and Arizona have received the letters, the FBI reported.

Kolko said that field tests on the powder included in the letters have found no sign of a hazardous material but that additional tests were being conducted.

Most of the letters have been sent to branches of JPMorgan Chase, one law enforcement official said on condition of anonymity because the investigation is ongoing.