His modus operandi is to take deep dives into corporate balance sheets and make lengthy, sustained public cases about the merits (or faults) of stocks. For six years, he pursued a small financial company in which he held a short position, Allied Capital, compiling presentations on what he viewed as the company’s suspect accounting methods. Then he wrote a 2008 book about it: Fooling Some of the People All of the Time. In October 2011 he used an hourlong, 110-slide presentation to argue that Green Mountain Coffee, the high-flying manufacturer of coffee pods, was overvalued.

Einhorn’s fame—and a good chunk of his fortune, which Forbes pegs at $1.2 billion—stems in large measure from his 2007 decision to short Lehman Brothers. As the financial crisis mounted, Einhorn relentlessly delved into the giant company’s balance sheet and queried executives and the ratings agencies over their assessment of Leh—man’s health. When Lehman went bust in September 2008, it was a huge vindication—and a boost to his fund’s bottom line.

Einhorn knows how to use the financial media; his wife, Cheryl, worked at Barron’s for several years. But he’s more self-contained than many of the preening hedge funders who have taken to holding reality TV–style clashes over stocks on CNBC. He lives in the suburbs, in Westchester County, New York, not on Fifth Avenue. He looked into buying a stake in the New York Mets in 2011 but backed out. When Einhorn finished third in the 2012 Big One for One Drop poker tournament in Las Vegas, he donated his $4.35 million in winnings to the nonprofit group City Year.

Not all of Einhorn’s bets have worked out so well. A loss in the last few months of 2012 caused Greenlight Capital to post a market-lagging 7.9 percent return for the year. “The disappointing fourth quarter result reduced our year from good to pedestrian,” Greenlight noted to investors in a January letter that was filled with puns and references to stocks—i.e., “our coffee was too hot, our apple was bruised.” That last bit was a reference to the decline in the shares of Apple—one of Greenlight’s largest positions.

The move is certainly good news for those with a financial stake in American, which filed for bankruptcy in late 2011, and in US Airways as well. But for consumers? Not so much. In the short term, it is sure to mean less, not more, competition. Fewer, not more, flights. And higher, not lower, prices.

The sky-high love match is just the latest step in a wave of consolidations that began during the Great Recession of 2008 and 2009. When the economy cratered, it was evident that too many airlines were competing for too few fliers. While upstart independents like JetBlue and Southwest continued to expand, the airline industry as a whole has been shrinking since. So Delta snapped up Northwest in 2008, and Continental merged with United in 2010. Rather than continue to discount one another into bankruptcy, the big airlines have decided to join forces and rationalize.

The result has been a decline in capacity. Since 2007, according to the U.S. Department of Transportation, the number of domestic flights in the U.S. has fallen every year, from 9.8 million in 2007 to 8.643 million in 2011—off nearly 12 percent. Accordingly, the number of passengers flying domestic flights fell from a peak of 679.1 million in 2007 to 618 million in 2009 before rising to 637.5 million in 2011. Through the first 10 months of 2012, the number of flights was down another 2.3 percent compared with the first 10 months of 2011, while the number of passengers was up .8 percent from the corresponding period.

Airlines have become more rational, reducing unprofitable flights and routes. And they’ve also become more rational by using data, software, and information technology to maximize sales and traffic on their flights. A plane seat is a perishable good. Once the cabin doors close, an empty seat becomes worthless. For years, airlines were generally content to throw out a large chunk of their inventory. A decade ago, the industry’s domestic load factor—the percentage of seats actually occupied—stood in the low 70s. But it has risen steadily from 75.5 percent in 2005 to 82.1 percent in 2010. Through the first 10 months of 2012, the load factor for domestic flights was 83.6 percent. In October 2012, the domestic load factor was at a record 84.1 percent.

The best thing the government can do to help the economy keep growing at this pace is to get out of the way a little bit—to stop with the brinksmanship and threats over the debt ceiling. “The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next,” he said. Obama offered his preferred solution of a balanced replacement to the impending sequester, composed of some budget cuts and new revenue through the closing of tax loopholes.

So far, so centrist. But he then made a slight turn to the left. To promote growth, he ran through his longstanding laundry list of encouraging manufacturing and clean energy. And then he made a sharper turn. Obama has received his share of grief from the left (and increasingly from the center) for focusing too much on the deficit and not enough on promoting demand. Obama seemed to take some cues from Paul Krugman. Departing from the official bipartisan Washington consensus, he proclaimed that “deficit reduction alone is not an economic plan.”

Then he pivoted to a largely neglected subject in the past four years: wages. “Corporate profits have skyrocketed to all time heights, but for more than a decade wages and income have barely budged,” he noted. Then Obama launched into perhaps the most surprising section of the speech—one that was not rolled out to reporters in the pre-speech phone calls. And to me, it was one of the best parts.

Today, he noted, someone working full time at the minimum wage makes just $14,500 a year. Even with extra tax breaks and credit, “a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.” He continued: “Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to nine dollars an hour.” Doing so would promote economic justice, to be sure. “It could mean the difference between groceries or the food bank.”

Why? Prosecutors fear that indicting a highly leveraged, highly indebted institution would trigger a cascade of unwanted outcomes—capital flight, bank runs, disruptions in vital markets. “The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone,” notes Barry Ritholtz, a money manager and author of Bailout Nation. “It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.”

The crime without punishment is as predictable as it is infuriating.

The news this week has been concentrated in two big areas: last decade’s U.S. mortgage mania and the London-centered conspiracies among banks to fix benchmark interest rates.

First, mortgages. On Tuesday, the U.S. Department of Justice, joined by several state attorneys general, sued ratings agency Standard & Poor’s, charging that it put its highest stamp of approval—AAA—on packages of mortgage-backed securities that it knew were junky for the sake of collecting fees. Some have suggested that is payback for S&P having downgraded America’s credit rating in 2011. But come on. Several years ago, a congressional probe unearthed a classic instant message exchange between S&P employees. “We rate every deal,” an analyst said. “It could be structured by cows and we would rate it.” The possible damages: $5 billion.

REI is, in fact, a cooperative owned by its members—much like, say, the Park Slope Food Co-Op, or a credit union, or a kibbutz. It was started 75 years ago by a bunch of mountain-climbing enthusiasts in the Pacific Northwest and has grown steadily over the years. Americans have latched on to snowboarding, hiking, and the new trends of showing up to work in fleeces and adventure sandals. And REI has been there to serve them.

The chain’s retail footprint has spread from the northwest and earthy-crunchy precincts into unlikely new areas: Greensville, S.C.; Paramus, N.J.; Yonkers, N.Y.; even a store in the Puck Building in Manhattan’s SoHo neighborhood. (Because people need hiking gear to climb Cobble Hill and hike through Carroll Gardens?)

In 2011, REI reported revenues of $1.8 billion, up 8.4 percent from the year before, and healthy operating income of $116.2 million. It added 842,000 new members in 2011. But the profits didn’t go into the pockets of mutual funds, or of top bosses. Each year, members receive an “annual patronage refund” that is based on purchases. In 2011, REI distributed nearly $100 million to its 4.7 million active members. The company also has a philosophy of sharing profits with employees—at the end of 2011, it paid out $14.9 million in employee performance incentives and $13.2 million in profit-sharing and retirement payments.

REI is a touchy-feely place. It ranked eighth on Fortune’s 100 Best Companies to Work For in America for 15 consecutive years. The company notes: “REI is committed to promoting environmental stewardship and increasing access to outdoor recreation through volunteerism, gear donations and financial contributions.” Jewell closed her most recent letter to shareholders with a phrase that likely has never appeared in a Securities and Exchange Commission filing: “We wish you much joy in sharing the great outdoors with friends and loved ones or enjoying solitude in a beautiful setting, and look forward to serving you on that journey.”

The complaint describes something that resembles a multinational corporation—the enterprise “spanned at least 8 countries” (including Pakistan, India, China, Romania, and Japan), and at least 28 states. It involved the creation of 80 fake companies, more than 1,800 mailing addresses, 7,000 false identities, and 25,000 credit cards. It was as if the alleged fraudsters manufactured a small suburb, in which everyone had good credit at the beginning—only to walk away from big credit-card bills once they maxed out the plastic. The total cost is still being counted. But the U.S. says “final confirmed losses may grow substantially above the present confirmed losses of more than $200 million.”

Credit-card fraud is generally done with existing cards—crooks may hack the number, or get a new card sent to a different address, and then run up a bill until they get cut off. New account fraud is more difficult, time-consuming, but potentially more lucrative. The alleged fraudsters apparently read the personal finance literature on how to build and rebuild credit scores. They would apply for and receive low-spending-limit cards, make a few small purchases and pay down the balance. “This slowly increased the credit score of the false identities,” the complaint notes. Then, after the credit-card companies responded to the good behavior and improved scores by raising the spending limits, they would go on spending rampages and stop paying. This is also known as a bust-out scheme. “It’s not unique,” said Al Pascual, senior analyst at Javelin Strategy & Research. “It’s just that $200 million is huge. A bust out scheme of this scale is unprecedented.”

The alleged conspirators also used more devious means to bolster credit scores. They would build up a virtual credit history by purchasing or adding “tradelines,” meaning the lines of credit that appear in a credit history. So, for example, that might show a particular person opening an account with a certain bank on a set date. One of the alleged conspirators, Vernina Adams, who ran a business called One Stop Credit Shop, allegedly enabled the members of the ring to post tradelines on the credit histories of false identities. In January, Adams pleaded guilty to an apparently unrelated federal charge of identity theft in California.

Increasingly, the large, statement-making headquarters building—typically located smack in the middle of town—is falling into the non-core asset category. The physical plants frequently included printing plants, which are no longer needed. They were built to house much larger staffs than are viable today. Meanwhile, many big-city downtowns are experiencing a renaissance that is bringing new capital. And newspaper buildings have what forward-thinking developers want: central locations, big floor plates, fine bones, and a recognizable address. Supply, meet demand.

Generally speaking, newspaper companies are motivated sellers—the market knows they are eager to raise cash, and quickly. As a result, they don’t always get the best price. In 2004, the New York Times Co. sold its fortresslike headquarters on 43rd Street, to Tishman-Speyer, a huge New York real-estate company, for $175 million. (The Times used some of the cash to build its new glass tower nearby.) But three years later, Tishman-Speyer flipped the building to an Israeli investor at the height of the commercial real-estate bubble for $525 million.

While many purchasers seek to convert the property into a different use, other buyers are looking for a teardown. In May 2011, McClatchy, which owns The Miami Herald, agreed to sell the newspaper’s headquarters, which occupies 14 prime acres overlooking Biscayne Bay, to a Malaysian developer for $236 million. The acquirer plans to raze the building and erect a casino and resort on the space.

That’s not surprising, given his personal history, but Soros also has a few positive things to say about Germany and its performance in the rolling European crisis. By intervening in government debt markets—only after German Chancellor Angela Merkel agreed—the European Central Bank may have saved the currency, but damaged the continent that uses it. “Germany did the minimum that was necessary to save the euro,” he said.

The result now is that the euro zone is effectively divided into creditors (countries like Germany, Holland, and the Scandinavian countries) and debtors (Greece, Spain, Italy, Portugal, Ireland). “The creditors are in charge, and are unfortunately arguing for a policy of austerity, which is counterproductive,” he said. While the ECB and IMF have made budget cuts and tax increases a condition of receiving aid, he notes, “You can’t reduce excessive debt by reducing the GNP.” He said austerity is pushing the euro zone into recession, which will further aggravate political tensions.

The danger now is that the European Union, a voluntary association of equal states, is in danger of devolving into a system “where Europe is divided into the center and the periphery, with the center controlling policy and the periphery used to a permanently inferior and subordinate situation."

Soros equated this to the post–World War II era, when the U.S. and the developed world controlled the flow of capital and subjected the developing world to very sharp financial discipline. “The political problem [in Europe today] is that the creditors, particularly Germany, are in charge,” he said. “And effectively nothing can be proposed on the European level without first checking with Germany if it is acceptable.” The upshot: the financial solution to the continent’s problems “is politically unacceptable, and, in the long run, intolerable,” Soros said. “So the euro is in danger of destroying the European Union.”

But there was plenty of complacency and self-congratulation on display. Mario Monti, the banker who helped lead Italy through last year’s financial crisis as a technocratic prime minister, took a victory lap. On Wednesday, he told the Davos crowd—his crowd—that Italy had regained the confidence of the world’s investors, thanks in large measure to the hard work of his country’s stoic citizens.

The U.K. may be teetering on the edge of yet another recession. But you wouldn’t have guessed it from Prime Minister David Cameron’s muscular, direct speech on Thursday. He boasted about cutting his country’s deficit, keeping business taxes low, and recommended other developed countries do the same. He didn’t say much about the urgency for growth, or the failure of his country to regain its pre-crisis economic peak.

Clearly, success has been redefined somewhat for European financial leaders. Flat is the new up, and not falling on your face is the new definition of success. A “C” is the new “A.” As Klaus Schwab, the maestro of Davos, put it: “We passed the exams last year without failing, but we still have a lot of homework to do.”

So, what are self-satisfied European leaders and the forgiving bond markets overlooking? Plenty, says Barry Eichengreen, professor of economics at the University of California at Berkeley and a prescient observer about the frailties of the Euro. “It’s a total no-brainer that the crisis will be back in 2013,” Eichengreen told me in the buzzing Congress Center. “The underlying issues haven’t been solved.” The much-discussed moves towards a European banking union (a common regulator for all the continent’s banks) aren’t really happening. There isn’t much growth to speak of.

It’s rare for the head of an global institution like the IMF to be introduced as a “subversive.” But that’s precisely how Brown described the 56-year-old lawyer. “Christine is a subversive in the very best sense of the word,” Brown said, citing Lagarde’s plain-spokenness and “eagerness to punch at complacency.”

Lagarde has gone against the grain of the European financial establishment by speaking out against austerity. In her speech at the World Economic Forum, Lagarde said Europe should continue the “necessary fiscal adjustment at the country level, and supporting demand, especially with further monetary easing.” The IMF’s in-house economists recently took another look at the impact of stimulus efforts and concluded that such efforts offered more bang for the buck than previously thought. “I feel good that we did it,” she said.

The ongoing debate over austerity highlights the larger way in which politics can pose a threat to economic recovery. “In many countries, there is the tyranny of the minority,” Lagarde said. In the U.S. and elsewhere, small minorities of political actors are unwilling to see the world economy as a tightly interconnected whole and prefer to look only in their own backyards. “It takes brave people to raise their voice and say, ‘We all matter to each other,’” she said.

Lagarde, who was the first woman to run the international law firm Baker & McKenzie, also spoke of the need to value women in the workplace and in the world’s political systems—at the highest levels of finance and in everyday life. “Here are some numbers: 50 percent of cars, 50 percent of computers, and 85 percent of consumer goods are bought by women,” she said. “It’s not a claim. It’s just the market.” To continue to thrive and prosper, she said, all countries must figure out ways to make the workforce and educational systems more open to women. Lagarde noted that when she met with corporate leaders, she would ask about the representation of women on the boards, and she carried a list in her back pocket of women qualified to serve on boards. When Brown asked why there weren’t more women running banks, Lagarde cited the barriers imposed by strong networks in the financial world and “the barriers we have in our own mind.” Two women are running banks in Iceland, she said—banks that went bust during that country’s financial crisis but are now recovering.

Even if it is a transition time in the U.S., it doesn’t make sense to me that the U.S. should take a back seat at Davos, especially considering the theme for this year’s gathering is “Dynamic Resilience.” I’d argue that in the developed world no economy has done a better job of reinvention and reconstruction than the U.S. in the last few years. But Americans aren’t exactly beating their chests about it. The country has avoided the deep damage of self-imposed austerity that Europe has. It pays low interest rates on its debt. It largely processed the housing and banking failure, and has, all the while, developed new energy sources. It is growing at about a 2.4 percent annual rate this quarter, according to Macroeconomic Advisers. By contemporary terms, that qualifies as rapid growth. “I think you’ve passed the height of your political madness,” said Martin Wolf of the Financial Times, dean of the economic columnists.

Economically, in other words, the U.S. has recovered some of its aggression. That was on display Wednesday morning in Davos, when JPMorgan Chase CEO Jamie Dimon, America’s leading banker (for better or worse) came out firing. At a panel, he defended his bank, the U.S. banking system, and America’s actions generally. He apologized to the company’s shareholders for the losses racked up by a trader now known as the London Whale, but not for the complexity of the business. "Businesses can be opaque. They are complex. You don't know how aircraft engines work, either," he said—the “you” referring to policymakers. (True, but aircraft engines don’t explode en masse and threaten the global economy. And when failures do occur, enginemakers don’t get bailed out by the government.) Speaking of aggression, after the session, I saw Dimon holding court in a lounge, standing just a few feet away from Dan Loeb, the edgy hedge-fund investor who has been shaking things up at Yahoo!, Morgan Stanley, and Herbalife.

But another Dimon quote that got less attention was more apropos. Dimon spoke glowingly of America’s much-maligned central bank. "I think they saved the system,” he said, nothing that the Federal Reserve bailed out the global financial system, not just America’s. Indeed, it struck me that good monetary policy that benefits others has been a form of a U.S. export. The way Brazil dispatches soccer players to leagues around the world, the U.S. loans out monetary experts to other countries. In the space of a minute in the Congress Center, I saw Adam Posen, the American economist who, until recently, served on the Bank of England’s monetary policy committee, where he was a rare voice for stimulus amid stagnation, and Stanley Fischer, the former MIT economist who is the Governor of the Bank of Israel, who has helped steer that turbulent nation’s economy through relatively calm waters.

JPMorgan Chase on Wednesday slashed the compensation of CEO Jamie Dimon in half as punishment for big trading losses racked up by the bank’s London Whale. Thursday morning, Citi, in the midst of a painful restructuring, announced ugly results. In past years, the typical reaction to a reduction in bonuses would have been rage, followed by swift action. The dissatisfied could walk across the street to another firm, or jump to a private-equity or hedge fund, or start their own asset-management firm. But now, the whole complex is under pressure.

“It’s musical chairs, and there are fewer chairs,” says one 20-year veteran of the industry. “Everyone thinks they’re special, but it’s very Darwinian out there.”

Yes, the elite players will find their way to hedge funds and alternative asset-management firms. Jes Staley, a top executive at JPMorgan Chase, recently jumped ship for hedge fund Blue Mountain Capital. But Wall Street’s middle-class bankers and traders “don’t have the options to go elsewhere,” one investment-banking veteran notes.

To a degree, the bonus clampdown is just a deferred recognition of reality. The bailouts and huge support that the government provided to the markets and individual firms in 2008 and 2009 allowed Morgan, Goldman, and Merrill to carry on as usual for a few years. That enraged the public, but kept employees happy. Now, however, the bailouts have largely been paid back, the guarantees have been lifted, and large banks are left facing a changed climate. Regulations (and the market) forbid them from using too much leverage. The Dodd-Frank financial-reform bill prevents them from gambling too much with shareholders’ money. Sen. Elizabeth Warren, a foe of the industry, has been seated on the Senate banking committee. And technology has eroded a lot of the advantage they once had in trading stocks, bonds, and other products on behalf of clients and for themselves. 

Dell was a company custom-built for the go-go 1990s. Michael Dell pioneered a direct-sales model from his dorm room at the University of Texas and ultimately built it into an Internet powerhouse. In the 1990s, everybody bought PCs (PCs, not Macs) because they wanted to go online. The explosion of the Internet—email, website, audio, gaming, video—meant people were eager to upgrade their computers every couple of years. Which mean they bought more PCs (PCs, not Macs). And it became cool and simple to purchase desktops—and then laptops, printers, speakers, and other accessories—online through Dell. Because it had a head start in direct sales against incumbents Iike IBM and Hewlett-Packard, and because it worked like crazy on logistics and its supply chain, Dell was able to reduce prices and gain market share while also turning a profit.

The upshot. As the chart below shows, Dell was arguably the best-performing stock of the 1990s. Between January 1991 and March 2001, its shares rose a stunning 2,407 percent.

But Dell’s dominance wasn’t to last. Once everybody was online and the market was saturated, it was difficult to boost sales. Throughout the first decade of the 21st century, profit margins for computer makers continued to slip. IBM sold off its PC business to a Chinese competitor, Lenovo, in 2004. Gateway was sold to Acer in 2007. And then, seemingly out of nowhere, Apple stormed back to gain market share in desktops, laptops, and a whole new range of devices in which Dell didn’t really have serious offerings: iPods, iPhones, iPads. And so while Dell rolled out clever ads, and boosted its physical presence with mall kiosks, its position in the culture shrunk. So did the company’s margins. And so did the stock.

Check out this chart of Dell from March 2000 to the present, in which the stock lost nearly 80 percent of its value. The broader stock market has enjoyed two epic rallies, and new technology companies have sprung from the fertile ground of Silicon Valley. But Dell has wilted. In order to get investors to stick around, last year it resorted to that old-economy tactic: paying a quarterly dividend of eight cents a share.

Instead of endlessly debating ideology, Duflo and company pursue empirical evidence. The method they embrace is the scientific one, employing randomized trials, with one group of patients getting the economic “treatment,” the other a placebo. As Duflo put it: “If we don’t know whether [aid is] doing any good, we are not any better than the medieval doctors and their leeches.”

This attitude informs the work of J-PAL, a 10-year-old center at MIT now with offices in every continent except Australia, which Duflo helped found and now runs. A case study in Poor Economics describes an experiment in Hyderabad, in which half the city’s neighborhoods participated in a microlending program and the other half didn’t. In the microloan neighborhoods, it turned out that residents were more likely than their placebo counterparts to have purchased large durable goods, like bikes or refrigerators, that made life easier. But microlending, often held up as a miracle cure for poverty, brought no sign of “radical transformation.” The proportion of families that started new businesses in the microloan zones went up from 5 percent to 7 percent: “not nothing, but hardly a revolution,” Duflo and Banerjee write.

This approach, refined in India, has a natural audience in Obama’s Washington. The administration, which insisted on efficacy studies for treatment in Obamacare, wants to place U.S. development assistance on a similar evidence-based path. But Duflo is an economist in the Obama mold in other ways as well: cosmopolitan, ambitious, a dreamer with qualities of a community organizer, a rationalist in a field dominated by ideologues. And a high-powered thinker with a sense of professional modesty. The last chapter of Poor Economics is entitled “In Place of a Sweeping Conclusion.” And among those non-conclusions: “Economists (and other experts) seem to have very little useful to say about why some countries grow and others do not.”

While AmEx’s card business benefited from one of the big business-friendly trends of 2012, the improving consumer, the company was hurt by some of the year’s other big trends: tougher regulation and the relentless disintermediation of established business models by the digital revolution.

AmEx announced Thursday that its earnings would be impaired by three major charges. The first, $342 million, was done to account for a slight uptick in participants cashing in their points in its Membership Rewards program, in which card users accrue points redeemable for travel and other rewards based on spending. Given that Membership Rewards points are a liability for American Express—they have a cash value to customers and will be used at some point—the fact that more will be redeemed in 2013 rather than 2014 is more of an accounting issue than a fundamental business one.

A second charge can be directly ascribed to Washington forcing financial firms to change their behavior. AmEx is reporting a charge for $153 million to account for money it will have to return to card members. “This amount deals with fees, interest and bonus rewards as well as an incremental expense related to the consent orders entered into with regulators last October,” the company said. Translation: the Consumer Financial Protection Bureau, the creation of Sen. Elizabeth Warren (D-Mass.), last year nailed American Express for a host of violations.

“This action is the result of a multipart federal investigation which found that at every stage of the consumer experience, from marketing to enrollment to payment to debt collection, American Express violated consumer protection laws,” the CFPB said. The litany of accusations included levying illegal late fees and wrongly charging late fees. American Express had agreed to refund at least $85 million to some 250,000 consumers and pay a penalty of $27.5 million. The sum the company announced yesterday is the result of its own accounting for customers it had wronged.