A month ago, Business Week advertised a cover story essentially predicting that credit cards would be the next shoe to drop in the increasingly precarious American economy. “The party was paid for with credit cards,” read the magazines bold headline. “The hangover will be a whopper.”

The article, however, was not quite so bold. It had anecdotes about rising defaults and lower profits for the big credit card banks like JPMorgan Chase and Capital One. Consumers talked of facing suddenly higher interest rates and lower credit limits. Even bankruptcies are once again on the rise, despite the tougher bankruptcy law that the banking industry helped pass three years ago.

But the article did not really make the case that credit cards would be the next iteration in the credit crisis. The magazine pointed out that defaults were still well below the levels seen during the recessions of the early 1990s and 2001. As for what happens to consumers, wrote Business Week, “nobody really knows, since the U.S. hasnt faced a credit crunch of this magnitude in 25 years.” The article ended with a bank analyst saying, “Were in uncharted territory.” Well, yes.

I spent this week rummaging around the world of credit cards, trying to figure out if I could answer the question: Is credit card debt next? I found my own set of scary statistics, and talked to credible bears who feared the worst. And I watched, via the Web, a hearing in the U.S. Congress aimed at stopping some credit card abuses that have become rampant.

I think I have an answer, but it is one that surprised me: Credit card debt is probably not going to be the next ripple in this ongoing economic tidal wave. Which is not to say there are not problems, or that many credit card users are not going to feel pain. It is just that to a maddening degree, credit card companies actually do O.K. when the rest of us are suffering. As much as we dont like to think about it, that is when we most need the darned things and it is also when they can cause us the most trouble. It is also, I think, why Congress has chosen this particular moment to try to redress some of the industrys most egregious practices.

There are few consumer products that generate as much psychic conflict as credit cards. Americans, especially, both love and fear the fact that credit cards make it possible to buy things on the spur of the moment. Credit cards enable foolish impulse purchases, but they also make it possible to buy things on credit - furniture, television sets, refrigerators - that many people consider absolute necessities. Credit cards can help us get through crises, but they can also help create crises, if we are not careful.

Stuart Vyse, a psychology professor at Connecticut College and the author of a new book on the psychology of credit cards, says that “immediate choices are extremely powerful and difficult to resist.” He believes that credit cards have played a big role in the fact that the United States now has a negative savings rate.

Our inner conflict over credit cards has been there ever since cards first became popular in the 1960s. Church ministers used to denounce them from the pulpit as the devils plaything, yet credit card spending increased every year in the 1960s and 1970s. Back then, they were far more benign then than they are now, with high minimum payments, fairly low credit limits and interest rates that were kept low by state usury laws.

Now it is not so simple. During the past 15 years especially, credit card issuers have become among the most sophisticated businesses on earth, with proprietary research that tells them almost everything about their customers. They know how to extract the maximum profit from those customers; they have created all kinds of hidden fees, used teaser rates to draw in new customers and learned how to make money even if the customer never actually pays off the loan. They can tell from customer behavior when a borrower is becoming “higher risk” - and they have the contractual right to jack up interest rates to hedge that risk, even if the customer has not missed a payment.

Elizabeth Warren, a critic of credit cards who teaches at Harvard Law School, says that card contracts have become “a thicket of tricks and traps.”

When I called the American Bankers Association to talk about credit cards, I was told that the people I needed to talk to were all unavailable.

ROME: The board of the Italian airline Alitalia accepted a takeover offer early on Sunday from Air France-KLM.

Following are details of the offer:

SHARES

One Air France-KLM share for every 160 Alitalia shares

Offer covers 100 percent of Alitalia shares

Air France-KLM to issue 8.7 million new shares

Offer conditional on 49.9 percent acceptances before the exercise of convertible bonds or 62 percent when fully diluted.

BONDS Air France-KLM to acquire the 2010 convertible bonds issued by Alitalia at their Mar. 14 closing market value of 0.3145 euro per bond for a total of \608 million.

CAPITAL INCREASE

Air France-KLM to underwrite fully a \1 billion capital increase to be launched immediately after the closing of the offer and open to all the shareholders of Alitalia and all holders of convertible bonds.

Proceeds to be used for commercial re-launch of Alitalia.

INDUSTRIAL PLAN

Plan foresees an initial phase of restructuring followed by development including fleet renewal from 2010.

Alitalia reaffirms an initial 2008-2010 three-year “transition and survival” plan drawn up on a stand-alone basis before it began negotiating with Air France-KLM.

Network to be organized around the international and intercontinental hub of Rome-Fiumicino, the center for domestic Italian routes, and around European and selected inter-continental destinations operating from Milan. Alitalia to maintain its own brand, remain part of SkyTeam.

Only part of ground-handling unit AZ Servizi to be transferred to Air France-KLM.

Flights linking Italy to India and China to be considered for reopening.

TARGET

Alitalia says the stand-alone 2008 to 2010 plan forecasts a return to operating profit in 2010.

Air France-KLM says its plans foresee a return to operating profit as early as 2009 and a rapid move to operating margin levels in line with those of other major European airlines.

Savings from the integration to allow Alitalias operating profit margins to rise to those enjoyed by major European carriers over the medium to long-term.

SHORT-TERM FUNDING

Italian government to provide a credit line to keep the airline flying pending completion of the deal, reimbursable as soon as it closes.

CONDITIONS

Endorsement of Italian finance ministry and its undertaking to tender its shares and bonds.

Italian government must not make any formal decision or statements which are strongly contrary to the deal.

Formal agreement of the unions at both Alitalia and AZ Servizi and undertakings to co-operate fully during the relaunch of the airline.

Air France-KLM says it is “relying on the commitment of all the employees, which will be crucial to the successful relaunch of the company”.

Guarantees that Alitalia can keep its slots.

Guarantees over services provided by Aeroporti di Roma.

A legal solution freeing Alitalia from risk in a dispute with SEA Handling at Malpensa airport in Milan.

Alitalia says the conditions must be assessed by March 31.

APPROVALS

Approval by the European Commission and competition authorities, expected by the end of the first half of 2008.

GUARANTEES

Air France-KLM gives certain assurances on future of Alitalia for five years, subject to continued slot availability.

GOVERNANCE

Air France-KLM to create a new Italian-held board seat.

Air France-KLM will not sell part of Alitalia for three years.

Alitalia to keep headquarters and operating base in Italy.

Air France-KLM ready to consider adding “Alitalia” to its name at a later date once it has 100 percent control.

FLEET

Alitalia fleet (excluding its Volare affiliate) will comprise 137 aircraft including 20 long-range planes in 2010.

From 2011, it says it will start to operate new-generation aircraft and envisages the replacement of its entire Boeing 767 fleet by 2016 and its MD80 fleet by 2020.

(05-16) 04:00 PDT New York — Tyco International, whose top two officers were imprisoned for fraud, has agreed to pay almost $3 billion to settle class-action suits brought by investors, the company said Tuesday.

The settlement, described as the largest payment ever by a company in such a suit, seeks to help put to rest one of the nation’s most notorious cases of fraud. Tyco investors might be in a position to recover even more money because they would also share in any proceeds from litigation that is still outstanding against Dennis Kozlowski, the former Tyco chief executive, and two other former company officials, and against the company’s former auditor, PricewaterhouseCoopers.

The settlement came as the company is seeking to split into three parts and is involved in separate litigation with bondholders who contend they are not being offered sufficient compensation for the change in corporate structure.

“With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter,” said Ed Breen, Tyco’s chief executive. “Our balance sheet and cash flow remain strong and will allow us to readily absorb these costs while removing much of the uncertainty around legacy legal matters.”

Under Kozlowski, Tyco grew rapidly through acquisitions and its stock price soared to a high of $63.21 in 2001. It vigorously disputed claims that it used aggressive accounting for acquisitions to inflate profits, but the Securities and Exchange Commission later concluded that it had done just that, and that it also hid millions in executive compensation.

Kozlowski and Mark Swartz, the company’s former chief financial officer, were convicted of grand larceny, falsification of business records and conspiracy and are serving sentences of up to 25 years in New York state prisons. A former director, Frank Walsh, who received a secret $20 million payment for arranging a merger, pleaded guilty to securities fraud, but was not sentenced to prison.

The case became synonymous with corporate excess after it was revealed that Kozlowski had used Tyco money for lavish parties, including one that featured an ice sculpture of Michelangelo’s David dispensing vodka, and for furnishings for a Manhattan apartment, including a $6,000 shower curtain.

Under the settlement, Tyco will pay $2.975 billion to those who purchased Tyco securities from Dec. 13, 1999, through June 7, 2002, a few days after Kozlowski was forced to resign after he was indicted on charges of sales tax fraud in New York, in connection with avoiding taxes on purchases of paintings.

In addition, the investors will receive half of whatever the company manages to obtain from Kozlowski, Swartz and Walsh. And the investors will continue their suit against the former auditing firm, and will also be able to assert accounting malpractice claims on behalf of the company.

PricewaterhouseCoopers’ lead partner on the Tyco case, Richard Scalzo, was later barred by the SEC from auditing public companies. The commission said that from 1999 on, Scalzo had good reason to doubt the honesty of Kozlowski and Swartz, but did not pursue proper auditing procedures that could have uncovered the fraud.

If Tyco does manage to recover more money from the former officials, it will go to Tyco International, not to either of the companies that are being spun off, which will contain Tyco’s health care and electronics businesses.

“This is a settlement of historic proportions for the investors who suffered significant financial losses, and it also sends a strong message to those who would engage in this type of misconduct in the future,” said Richard Schiffrin of Schiffrin Barroway Topaz & Kessler, one of the lead counsels in the class-action suit.

In an interview, Schiffrin said he expects that the company will be able to recover “tens of millions” from the former executives. “It should be in the hundreds of millions,” he said, but there is some question how much money they have left.

As part of their sentences on the criminal charges, Kozlowski previously paid $98 million in restitution to Tyco, and Swartz paid $35 million. That money will be kept by the company, but any future payments will be split with the plaintiffs.

It is not clear how much money any investor would recover, because that depends on how many claims are filed and the formula adopted to divide the money among the plaintiffs. In addition, the lawyers are likely to seek a substantial percentage of the settlement as compensation for their work.

While the Tyco settlement appears to be the largest ever by a company, it ranks fourth in terms of total payments to investors. The other cases, all involving multiple defendants, concerned the frauds at Enron, WorldCom and Cendant. Tyco earlier paid $50 million to settle a suit brought by the SEC.