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For most of the past decade, the economy grew much stronger - but middle-class Americans had little to show for it.

That’s the conclusion of a trio of economists who on Thursday released a preview of their book The State of Working America in 2008/2009 due out next year.

Despite two periods of recession in the past decade, U.S. worker productivity still rose 18% in the 2000s - about 2.5% per year, according to author Jared Bernstein, a widely followed economist from the liberal-leaning Economic Policy Institute.

But inflation-adjusted income for the American middle-class family actually fell during the same period. The median real income for working-age middle-income families in the United States dropped $2,000 between 2000 and 2007, from about $58,500 to $56,500, the U.S. Census Bureau reported Tuesday.

As a result, the 2000-2007 business cycle was the first ever in which the nation’s middle-class families had less real income at the end than when they started.

"It’s a compelling example of a large disconnect," said Bernstein. "Americans aren’t being rewarded for their productivity."

That’s a stark change from 1989 to 2000, when the median income for working-age middle class families rose 10% - about half of the productivity growth over the same period, according to EPI. Had the trend of the ’90s continued, the median income of working-age households would have risen by $3,600 instead of falling in the 2000s.

Not every economist agrees with that assessment.

"The numbers are misleading, because you need to take into account everything that workers are earning, including substantially more in health care and retirement plans," said James Sherk, the Bradley Fellow in Labor Policy at the conservative-leaning Heritage Foundation.

Bernstein said the middle class has not taken out an equal share of what it put into the economy because of weak job creation during the decade and a widening gap between rich and poor.

"This is a story of missed opportunity," Bernstein said.

The nation suffered through a weak job market in the 2000s. Jobs grew only 0.6% during the period, which wasn’t enough to keep up with the growing population, the EPI said. As a result, there were 1.5 million more unemployed workers at the end of the business cycle than at the beginning.

"The official unemployment rate understated how difficult it was to find a job in the 2000s," said EPI economist Heidi Schierholtz. "The U.S. jobs creation machine came to a screeching halt after the 2001 recession and barely picked up steam in the recovery."

Schierholtz cowrote The State of Working America with Bernstein and another EPI economist, Lawrence Mishel creditscore. The book was originally published in 1988; the new edition includes updated chapters on jobs, wages and income.

According to the book, the economy took four years to return to the previous peak jobs level after the 2001 recession - an unprecedented amount of time. The recovery took more than twice as long as the 21-month average of all other recoveries after 1945.

Jobs weren’t helped by a second round of very weak economic growth toward the end of the cycle.

"The economy of the 2000s has been like shampoo instructions: Bubble, bust, repeat," Bernstein said. "We need to generate growth that’s sustainable, not on bubbles."

By the end of the business cycle, nearly one in five unemployed workers had been out of a job for at least half a year.

Furthermore, one in 11 workers were underemployed in the 2000s, as they were looking for full-time work but involuntarily took part time jobs. Workers’ hours were cut by 2.2% in the 2000s, which negated the median family’s 1% rise in hourly wages.

Sherk said, however, that unemployment levels are comparable to other decades other than the 1990s, when the tech bubble added a disproportionate number of jobs to the economy.

"Unemployment is high compared to the late ’90s, but not the ’80s," Sherk said. "It’s not unusually high, especially when you consider that the labor force hasn’t grown as rapidly this decade as it did in the 90s."

Another finding from the book: Many middle class Americans who had jobs probably found that their bosses were getting big raises, while their paychecks were staying about the same.

That’s because 90% of the growth in U.S. workers’ income from 1989 to 2007 went to the top 10% highest earners, EPI said. Income for the top 1% grew 204% since 1989, and the top 0.1% saw their income grow 425% in that span.

But Sherk said the top earners are rarely the same today as they were five years ago. "This is coming from people who weren’t in the top 1% before," he said.

"Bill Gates, Jeff Bezos, the Google founders. It looks like they’re getting more than their share, but it’s actually something else: They’re all setting new high standards," Sherk said.

Still, the gap continues to grow. In 2006, the top 1% held the highest share of total U.S. income since 1928, according to EPI.

"There was a vast disconnect in what people earned with what they produced," said EPI’s Mishel.  

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Shares of Fannie Mae and Freddie Mac soared Monday after Freddie completed a $2 billion debt sale and a Wall Street analyst said a government bailout of the mortgage finance giants may not be inevitable.

But some regional banks with significant holdings in Fannie and Freddie preferred stocks followed the rest of the market down amid questions over whether the government would step in to rescue the two government-sponsored companies.

Shares of Fannie rose 25 cents, or 5%, to $5.25 in afternoon trading, while Freddie (FRE, Fortune 500) climbed 39 cents, or 13.9%, to $3.20.

Freddie’s sale of $2 billion in short-term debt Monday was well received on Wall Street, but the company had to sweeten terms of the offer to lure demand, investors said.

Citigroup analyst Bradley Ball said Monday that federal bailouts "don’t necessarily wipe out all" company shareholders, and that Fannie and Freddie still have options despite their steep stock declines in recent weeks.

"We are not convinced that (the government) needs to take any action over the near term," Ball wrote.

Regional banks with the largest exposure to Fannie and Freddie preferred stock as a proportion of their capital include Sovereign Bancorp Inc., Westamerica Bancorp and Gateway Financial Holdings Inc., according to a research note from Samuel Caldwell at Keefe, Bruyette & Woods.

All of those banks’ shares were down in afternoon trading free credit report online.

A government rescue of Fannie and Freddie - whose share prices have plunged in recent weeks as they struggle with billions of dollars in losses from bad mortgages - could be costly for scores of investment, banking and insurance companies that hold billions in their preferred shares.

Preferred shares usually pay a fixed dividend and have priority over common stock when it comes to dividends and bankruptcy liquidation.

While slightly riskier than bonds, which have the highest priority in times of trouble, companies often invest in preferred shares for certain tax advantages.

Still, on Wall Street, Fannie and Freddie’s existing preferred shares are trading like junk bonds, yielding around 17% to 19% instead of around their 6% dividend levels. The higher yield is an inducement to investors to accept the higher level of risk that the dividends won’t be paid. 

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Wal-Mart Stores Inc. has settled a lawsuit it filed to avoid paying millions of dollars in a retirement package for former executive Tom Coughlin, court officials and Coughlin’s attorney said Thursday.

Court officials said terms of the settlement between the former Wal-Mart vice chairman and the Bentonville, Ark.-based retailer would be sealed for 20 days.

Tim Brooks, Coughlin’s attorney, said the settlement included a payment to his client, but he wouldn’t disclose the amount. Wal-Mart did not immediately return a call for comment Thursday afternoon.

Jury selection in the case was set to begin Thursday afternoon.

Wal-Mart (WMT, Fortune 500) sued Coughlin in 2005 in Benton County Circuit Court, claiming it should not have to pay Coughlin because he embezzled hundreds of thousands of dollars from the company pay day loan. The retirement benefits were estimated at between $12 million and $16 million.

Coughlin pleaded guilty in January 2006 to federal charges of wire fraud and tax evasion, and was sentenced to 27 months of home detention plus 5 years probation. He also was ordered to complete 1,500 hours of community service and pay $400,000 in restitution.

In 2006, Circuit Judge Jay Finch dismissed Wal-Mart’s lawsuit, but the Arkansas Supreme Court last year agreed with Wal-Mart that Coughlin was obligated to disclose during retirement negotiations that he was stealing from the retailer. 

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Energy companies placed $487.3 million in winning bids for the right to drill in the western Gulf of Mexico, knowing they may get a chance later to explore in other areas that have been off-limits for decades.

The lease sale Wednesday was the first since President Bush last month lifted an executive ban on oil drilling off the Atlantic and Pacific coasts. Since then, politicians in both parties have signaled they are willing to expand offshore exploration, and the issue has become a hot topic in the presidential race.

Interior Secretary Dirk Kempthorne said the results were a step toward more domestic oil production. He acknowledged, however, that some of the purchased leases may not end up producing oil.

"Much more needs to be done to create the access necessary for the oil industry to do what it does best and develop this country’s resources to secure our energy security," Kempthorne said at a news conference after the sale, which was held in a downtown New Orleans hotel.

A total of 53 companies offered $607 million for leases covering 1.8 million acres in federal waters off Texas. About 90% of the tracts the government auctioned off received no bids. The highest bid - $61 million - came from StatoilHydro USA (STO), followed closely by Chevron USA Inc., which offered $52 million for a tract.

Republican presidential candidate John McCain made a campaign stop Tuesday on a Gulf of Mexico oil platform owned by Chevron (CVX, Fortune 500), which is already a big player in the Gulf.

"This is where we have found success, and we are the clear leader," said Chevron spokesman Mickey Driver faxless payday advances. "We came here to win, and we are leaving winners."

Once again, companies were most interested in deeper water. About 80% of the bids were for parcels in water 1,000 feet deep or more.

Offshore wells now provide 27% of the nation’s domestic oil. Areas now off-limits to drilling may contain much more than the 18 billion barrels of oil and 73 trillion cubic feet of natural gas now estimated to be there, Kempthorne said. Those estimates are based on exploration done more than 25 years ago with now-outdated technology.

Those present at the lease sale in New Orleans said there was excitement about other areas opening up, but that likely did not influence how companies bid Wednesday.

"Companies are recognizing a movement afoot, but I’m not sure this sale says much about that," said Tom Fry, president of the National Ocean Industries Association, which follows offshore drilling. 

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Wachovia Corp. has agreed to buy back $8.5 billion in auction-rate securities as part of a wide-ranging investigation by the New York Attorney General and other state regulators into the collapse of the market.

The Charlotte, N.C.-based bank will also pay $50 million in fines to be distributed among states.

Wachovia (WB, Fortune 500) is the fifth bank to agree to repurchase the troubled securities over the past two weeks, following Citigroup Inc., UBS AG, JPMorgan Chase & Co bad credit payday loans. and Morgan Stanley.

Auction-rate securities are investments that resembled corporate debt, but their interest rates were reset at regular auctions.

The market for the securities collapsed in February amid deterioration in the broader credit markets. 

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In the world of package companies, there is one story you can rely on to come up with mind-numbing regularity: speculation that either United Parcel Service Inc (UPS.N: Quote, Profile, Research, Stock Buzz) or FedEx Corp (FDX.N: Quote, Profile, Research, Stock Buzz) are in talks to buy TNT NV (TNT.AS: Quote, Profile, Research, Stock Buzz).

The latest speculation that UPS is in talks to buy TNT for 10 billion euros ($15.2 billion) sent the Dutch mail company’s stock up more than 5 percent. A mid-July rumor that FedEx was doing the same sent TNT stock up nearly 30 percent in a single day. Ten days later, TNT’s stock fell 18 percent on a report that talks had ended.

While this talk almost invariably comes to naught - and both companies have consistently refused to comment on the recurrent rumors - some day TNT would make a good fit for UPS and an even better one for FedEx. TNT’s stock rises on rumors of an imminent bid because a deal is seen as a good long-term strategy for either company.

“The rumors come up every couple of months, and every time nothing happens,” said Jason Seidl, an analyst at investment bank Dahlman Rose faxless payday loans. “The problem is that a deal makes sense, FedEx needs TNT, and UPS could use it, so that’s why TNT’s shares react.”

“Eventually, I am convinced there will be a deal, but in the meantime it’s like the little boy who cried wolf,” he said.

Most analysts greeted the latest episode in what Seidl termed the “TNT saga” with more than a dash of skepticism. They rolled out reasons why the Dutch company would be a good buy but also stressed that any announcement of a deal by UPS or FedEx would result in a bidding war.

“Recently, there has been increased press speculation about first FedEx and now UPS purchasing all of TNT or its Express division,” Edward Wolfe of Wolfe Research wrote in a note for clients. “We … believe at this point there remains little evidence of such a deal occurring.”

Even if a deal is not in the works, stock moves on the back of rumors are suspicious, some analysts said. 

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Berkshire Hathaway Inc. reported an 8% decline in second-quarter profit Friday, because it collected fewer insurance premiums and recorded $1 billion in unrealized derivative losses.

Billionaire Warren Buffett’s company said it generated $2.9 billion in net income, or $1,859 per share, during the quarter that ended June 30. That’s down from the $3.1 billion net income, or $2,018 per share, it reported in the same period a year ago.

The three analysts surveyed by Thomson Financial were expecting earnings per share of $1,370.33 on average.

Berkshire generated $30.1 billion in revenue during the second quarter, up from $27.3 billion last year.

Officials at Berkshire typically do not comment on quarterly earnings reports. A company spokeswoman did not immediately respond to messages left Friday afternoon.

The unrealized derivative losses Berkshire reported in the second quarter are down from the $1.67 billion the company reported in the first quarter. But Berkshire said in its news release that it doesn’t think investors should pay much attention to the amount of derivative or investment gains or losses in any given quarter.

Buffett has said he believes the long-term derivative contracts Berkshire has written will ultimately be profitable.

Berkshire’s derivatives fit into two major categories cash advance now. Berkshire will have to pay on some of the contracts if certain U.S. entities default on their credit. Most of the other derivatives will only be paid if certain stock indices are lower in 15 or 20 years than they were when the contract was written.

Berkshire said its operating earnings offer a better measure of how the company is performing in any given period, because those figures exclude derivatives and investment gains or losses.

Berkshire reported a $2.3 billion operating profit, or $1,465 per share, during the quarter. That’s down from the $2.5 billion operating profit, or $1,625 per share, it reported in the second quarter of 2007.

Berkshire owns more than 60 subsidiaries, ranging from insurance to clothing, furniture and candy companies, restaurants, natural gas and corporate jet firms. Berkshire also has major investments in such companies as Coca-Cola Co. (KO, Fortune 500), Anheuser-Busch Cos. (BUD, Fortune 500) and Wells Fargo & Co. (WFC, Fortune 500).

Berkshire’s Class A shares (BRK.A) gained $275 to close at $115,750 Friday. 

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Fannie Mae on Friday posted a much larger-than-expected second-quarter loss and slashed its dividend more than 85 percent to preserve capital as home loan defaults accelerated in the bleakest U.S. housing market since the Great Depression.

Three weeks after U.S. authorities took sweeping steps to support Fannie Mae and its smaller sibling Freddie Mac, the two largest providers of U.S. home mortgage funding, Fannie said its credit costs will keep rising this year.

Fannie Mae Chief Executive Daniel Mudd said the company would likely boost reserves, but said it had not taken advantage of assistance recently made available by the U.S. Treasury and Federal Reserve Bank.

Fannie also said it will cease buying certain risky mortgages that accounted for nearly half of its credit losses in the quarter and set a year-end target for doing so.

Fannie Mae, whose shares dropped more than 6 percent following the earnings news, said its loss totaled $2.3 billion before preferred dividend payments, or $2.54 per share. It was Fannie Mae’s fourth straight quarter of red ink, bringing its cumulative loss over the last 12 months to $9.44 billion before preferred dividends.

The loss reversed a profit of $1.95 billion, excluding preferred dividend payments, from a year earlier cash advance loans. Excluding extraordinary items, the second-quarter loss equaled $2.51 per share, more than two-and-a-half times greater than the average estimate among Wall Street analysts of 98 cents per share, according to Reuters Estimates.

“The key for Fannie and Freddie both, and also for banks, is ‘Do they have the capital to get through the next year or so?’” said David Dreman, chairman of Jersey City, New Jersey-based Dreman Value Management, LLC, a large holder of Fannie and Freddie Mac shares.

“Their revenues are up pretty significantly,” he added. “So if they can hold, if they are not taken under by a wave of defaults now, it’ll be a good business two years out. It looks like they can, but there are a lot of negatives out there too.” 

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Oil prices are falling sharply, and that’s good news. But not nearly as good as you might think.

No doubt the drop, down to $120 by mid-day Monday, gives strapped consumers relief at the gas pump. Prices have dropped below $4 a gallon and could be headed toward $3.50, going by trading in wholesale futures markets. Any decline will be welcomed by Americans struggling under the burden of falling house prices, rising layoffs and stagnant wages.

But falling oil prices also suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth earlier this decade. A weakening economy will mean more layoffs, further pressuring already reduced spending.

"There is no doubt that with gasoline prices dipping below $3.90 a gallon we have a bit of a reprieve on the energy front," Merrill Lynch economist David Rosenberg wrote in a report Monday, "but the reality is that this is a chicken and egg game because the decline is reflecting the consumer recession."

Perhaps the biggest factor behind the recent 18% drop in the price of a barrel of crude is sinking North American demand. Federal Highway Administration data show the number of miles driven in the U.S. dropped from year-ago levels for the seventh straight month in May.

May’s decline was the third-largest monthly drop on record since 1942, says Stephen Schork, editor of the Schork Report energy and shipping newsletter in Villanova, Pa.

Americans are driving 4% less now than they were a year ago, Rosenberg writes, while energy use in inflation-adjusted terms has dropped 2% - an event he calls "extremely rare."

The pullback comes after the recent crude-price surge - the cost of a barrel doubled between Labor Day of 2007 and July 11 - seriously damaged the industrial economy, which despite its long decline remains a crucial source of better-paying jobs.

General Motors (GM, Fortune 500) on Friday posted a $15.5 billion second-quarter loss, as sales plunged 18% from a year ago. The company and rival Ford (F, Fortune 500) have slashed truck production, laid off thousands of workers and refocused on smaller cars as buyers flee the light trucks that had made the companies so much money no fax payday loans.

Americans’ decision to drive less comes at a time of rising stress. The economy has been hemorrhaging jobs and real wages, adjusted for inflation, have been flat to lower for a decade. Americans have enjoyed a rising standard of living in the meantime by borrowing - but with banks choking on subprime mortgages gone bad, the loan window is closing. Rosenberg calls a recent rise in the savings rate "a vivid sign that frugality is now replacing frivolity."

Meanwhile, the weak economy is spurring more companies to cut back. Outplacement firm Challenger Gray & Christmas said Monday that layoff announcements jumped 26% from a month ago in July. The unemployment rate recently hit a four-year high at 5.7%.

One unhappy fact is that a drop in the price of oil won’t bring back many of the jobs lost over the past year to the energy-cost surge. Even were gas to fall to $3 a gallon - a move that is by no means assured - no one is going to beat a path to the dealership to buy pick-ups and SUVs that are now, in many cases, being phased out. GM recently announced plans to shut four SUV plants.

On a happier note, there is hope that the decline in oil prices has just begun. While Schork says it’s anyone’s guess where crude will trade - "By the end of the third quarter, there’s a good chance oil could be below $100 a barrel, and a good chance it could be above $150," he says - others see a chance that the commodity, having enjoyed a head-spinning runup, could also drop more than anyone expects. Economist Jim Griffin notes at the ING Investment Weekly that crude’s rally earlier this year became "nearly parabolic" - a sign that the decline could be steep.

Now a return to double-digit oil may not rescue the Hummer. But as the government’s fiscal stimulus program did earlier this year, it could give consumers a little more change in their pockets, either to spend, salt away - or pay down their debts.  

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HSBC Holdings PLC, Europe’s largest bank by market value, reported Monday its steepest fall in profit since 2001 as costs for bad U.S. mortgage loans mounted.

Net profit for the first half of the year plunged 29% to $7.7 billion from $10.9 billion in profit in the January to June period of last year.

"The first half of 2008 saw the most difficult financial markets for several decades, marked by significant declines in profitability throughout much of our industry," said HSBC Chairman Stephen Green. "HSBC was not immune from the turmoil."

The biggest losses came from the North American market, which HSBC (HBC) depends on for a quarter of its revenue. Operations there posted a first-half loss of $2.9 billion, compared with profit of $2.4 billion a year ago.

Part of the blame lies with Illinois-based Household International Inc., a lender HSBC purchased in 2003 that elevated the British bank to the unenviable position of biggest U.S. subprime mortgage lender.

Still, HSBC has weathered the global financial storm with better than some others. In May, the bank reported that first-quarter 2008 profit was actually better than the same period last year, despite a $3.2 billion write-down on subprime mortgage assets in the United States.

Today’s half-year results compare favorably with what other British banks are expected to report later this week in their own half-year earnings results. On Friday, analysts are expecting the Royal Bank of Scotland to report the largest loss in British banking history — of between $2 billion to $3 billion.

HSBC owes its relatively good performance to two things: its ample capital base, which means the cost of funding operations hasn’t shot up in the midst of the credit crunch as it has at other British banks such as Alliance & Leicester PLC; and its strong and growing position in the quickly growing emerging markets of Asia, where HSBC rakes in over 50% of its pretax profit.

Operations in the Asia-Pacific region, excluding Hong Kong, reported a pretax profit of $3.6 billion, up 8% on the $3.3 billion the company made in the first half of 2007.

One of the positive signs in the earnings report was "the continuing strength in the retail businesses in the developing markets," HSBC’s finance director, Douglas Flint, said in a conference call Monday morning.

HSBC’s aggressive expansion into emerging markets is ongoing: the bank has opened 63 new branches across Asia in the last six months.

Right now, the company is primed to become a major player in the quickly emerging economy of South Korea through the purchase of a controlling 51% share of the country’s sixth-largest bank, Korea Exchange Bank, from the U.S cheap payday loans. private equity firm Lone Star Funds.

Although the deal hit a substantial road bump last Thursday, when the deadline for its completion passed without gaining the necessary approval from South Korean regulators, the fact that it’s been put on ice could prove to be a financial boon to HSBC.

Asian financial stocks have fallen by 18% since September, when the $6 billion deal was first agreed upon, and so HSBC could use the deadline’s end to renegotiate a lower price for the Korean bank, which would give HSBC more than 7.7 million customers and 345 branches in Asia’s fourth-biggest economy.

HSBC confirmed that negotiations with Lone Star were ongoing in a regulatory announcement released Sunday, which said the two companies were "discussing how this transaction may be taken forward."

It said last week that it still believed in the long-term prospects for Korea and wished to play a major part in the country’s further development.

HSBC shares fell 1.9% to $16.16 on the London Stock Exchange in Monday morning trading. 

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