As the autumn sun warms the woods, Michael Duke settles in for another day. On assignments like this, he sometimes dons a ghillie suit, the tattered camouflage that snipers wear to blend into underbrush. On other jobs, he sits in his car staring at video images from a tiny camera secreted a quarter-mile away. At 47, he still carries some heft left over from lifting weights when he was a drug-enforcement officer, but he is soft-spoken. When frustration mounts on days like this, he coaches himself. “Patience,” he says.

The house he’s watching sits off a paved road in rural Granville County, north of Raleigh. The yard is clipped, the chrysanthemums tended. On his second day, she emerges, a middle-age woman, purse draped on her arm. She drives to a bank, then to Kmart, where she pushes a cart up and down aisles, shopping before returning home. The next day, a rented truck, a stick-on logo identifying it as a utility contractor’s, parks on the road near her house. Like an early riser’s yawning stretch, its bucket arm slowly flexes up. Now with a clear view of the back-yard, Duke videotapes the 52-year-old hoeing her garden, tugging a heavy hose, lugging a yard wagon loaded with potting soil and stooping to plant bulbs. For good measure, he shoots similar activities over two more days.

Duke turns over his tapes to the insurance company that hired him. They become evidence in a hearing before the N.C. Industrial Commission, the state agency that adjudicates workers’ compensation cases. It denies the woman’s claim that she had been disabled by an on-the-job injury moving boxes at a chain drugstore. “A false claim like that might run $25,000 to $50,000 for the insurer,” Duke says, “so $600 a day for a few days of surveillance, including travel time and everything, is a pretty good investment.” His Charlotte-based Carolina Surveillance & Investigations Inc. employs five to 10 private investigators, depending on the caseload.

A dime of each dollar paid in premiums is lost to fraud, state Insurance Commissioner Wayne Goodwin estimates. Carolina Surveillance’s speciality, like that of several dozen similar companies across the state, is workers’ compensation fraud. But that’s just part of a framework that includes health-insurance scams, staged automobile accidents — officials say North Carolina is experiencing a near epidemic of those — and bizarre property-and-casualty claims. In 2008, P&C fraud losses alone approached $1 billion in North Carolina, which ranked eighth nationwide, says Frank Scafidi, spokesman for the National Insurance Crime Bureau in Des Plaines, Ill. Employers, motorists, homeowners — everybody who buys insurance — pick up the tab.

In May, N.C. Department of Insurance investigators charged a Northampton County farmer after he claimed someone stole a $12,300 machine for removing chicken manure. They allege that he previously claimed lightning knocked out the fans in his poultry house, suffocating $2,700 worth of chickens. Lightning also was to blame, according to a Holly Springs man, for $44,000 in damage to stereo equipment and other electronic gear. Investigators say he fabricated repair bills, slipping up when he put the number of his own post-office box on them.

An apparently accident-prone man faces trial in Robeson County this month on charges that he staged dozens of automobile wrecks. Jonathan Christian Jones, 39, kept most claims to less than $3,000, small enough to fly under insurers’ radar, Assistant District Attorney Tony Berk says. “The North Carolina Department of Insurance has started aggressively investigating fraud, but a lot of insurance companies don’t share data with each other. Jones, in the course of nearly 40 accidents, has had claims against virtually every insurer in the state. Somebody dropped the ball.” Typical was one in March for damage to his 1993 Ford pickup. “He drove mainly old trucks,” Berk says. “I guess he figured they were safer.” According to investigators, he waited in the parking lot of a Lumberton Wal-Mart until his victim started backing from a space, then speeded up so she struck the side of his truck.

“We’re having a record-breaking year,” Kristin Milam, the Insurance Department’s public-information director, said in late November. It has the department’s 20 investigators scurrying. In 2004, they closed 38 cases. Midway through November, they had closed 276, recovered more than $10 million, arrested 144 people and obtained 73 convictions. In roughly the same period, the Industrial Commission fraud section’s caseload almost doubled to nearly 800. What’s behind this? A sagging economy — unemployment stood at about 11% statewide in November — and hundreds of companies struggling to stay afloat. In September, the CEO of Winston-Salem-based Pace Airlines Inc., a charter operator that also maintains planes for other airlines, was charged with failing to pay health-insurance premiums for 337 employees. Bret Grieves, vice president of the Greensboro office of Lynchburg, Va.-based Scott Insurance Inc., says what many think: “In desperate times, people do desperate things.”

Desperation, too, is turning an economic crime into something uglier. The driver in the Lumberton wrecks also faces charges of assault with a deadly weapon. “He didn’t seem to appreciate that when you attack someone by ramming their car with yours, that’s assault,” Berk says. A Charlotte insurance agent was sentenced in June to nearly 28 years in prison for the 2008 murder of a Department of Insurance auditor. Sallie Rohrbach had uncovered evidence that Michael Howell collected more than $150,000 in premiums from customers but failed to insure their cars.

Owners facing hard times once wiped the slate clean by torching their businesses, filing claims and starting anew. That’s less common now. Arson, for fraud or other reasons, decreased 6.8% in 2008 in North Carolina. “They’ve got much more sophisticated forensics,” Grieves says. “They’ve got better means of tracking people down on fire cases.” Insurance fraud frequently wears a new face, that of professionals.

On a summer afternoon, a 1998 Ford slowly tows a 2000 Jaguar on a deserted state road near Kinston. A 1997 Jeep approaches and slams into the back of the Jag. When the investigating Highway Patrol trooper writes his report, he makes a curious notation: There were no skid marks. In July, Rayon Lamont Artis, 32, pleaded guilty to multiple charges stemming from that wreck and others. He was sentenced to up to three years in prison. The Greenville resident, investigators say, had his girlfriend ram the Jaguar. Eight people in a ring he allegedly headed have pleaded guilty or await trial. “He bought cars with a high book value that had been salvaged because they had bad engines, water damage or whatever,” Insurance Department spokeswoman Johanna Royo says. The ring wrecked them and claimed full value. In the accident involving the Jaguar, Allstate Insurance Co. paid $33,643. In all, more than $100,000 in bogus damage and medical claims were filed.

In Robeson County, seven people have been charged with staging wrecks to collect property-damage and medical insurance, filing more than $130,000 in fraudulent claims. Four face federal charges, and three are scheduled for trial this month on state counts. Investigators sniffed a pattern. “You see multiple claims in a short period of time — the same people appearing in multiple accidents with the same people,” says Mickey Biggs, a former Lumberton police officer who was the state insurance investigator on the case. “And lots of soft-tissue injuries.” Unlike fractures, they’re difficult to disprove.

In the absence of tangibles — bent fenders or skid marks — other types of insurance fraud are more difficult to detect. Medical fraud, whether against commercial health plans, Medicare, Medicaid or third-party administrators and the self-insured businesses they serve, often is committed by nonprofessionals. “Unfortunately, a good description of it might be a crime of opportunity,” says John Hanlon, director of claims operations for Eastern Alliance Insurance Group. The Lancaster, Pa.-based company’s Southeast regional office is in Charlotte. It provides workers’ comp, health insurance, group plans such as dental coverage and serves as a third-part administrator. What those in the business call “soft fraud” and insurance abuse are major concerns for businesses and insurers. “Fraud gets the blinking light,” says Mike Arnaud, client-center manager for BB&T Insurance Services in Greensboro. “But abuse is an area that might have as much impact as fraud — the tale of the little white lie.” Hard fraud is clear-cut. Hanlon cites a case in which his company investigated a tip from a dentist that two people were using the same Eastern Alliance dental-insurance card. Soft fraud is harder to prove. Attitudes are at play. “Many look at insurance fraud as a victimless crime: ‘So what if I get an extra week off from work or a new set of golf clubs? They have a lot of cash.’”

Such attitudes, coupled with economic circumstances, create a volatile stage for fraud — and sometimes in unlikely ways. Out-of-work homeowners might neglect maintenance, leading to broken plumbing, which they then file as a water-damage claim. Or employees about to get laid off or fired — insurance investigators say the unwitnessed Friday-afternoon accident is so common that it’s a red flag — file to ensure income after the job’s gone.

Insurance fraud, however, is not limited to individuals. Employers also engage in workers’ comp scams. Industrial Commission investigators’ caseloads are about evenly divided between people who have filed potentially fraudulent claims and employers who fail to insure workers. Usually, companies with more than three employees must buy workers’ comp insurance. They might understate their number of employees to get lower premiums or lie about the danger of jobs, perhaps classifying a high-risk roofer as a sales rep. In one case, a Charlotte roofing company used another company’s workers’ comp insurance to land a subcontracting job. The fraud was detected when a worker fell and filed a $600,000 claim.

Why risk detection and a possible fine? Insurers say penalties are generally mild. “Restitution is obviously the No. 1 goal, but the question is always, ‘Can we collect?’’’ Hanlon says. “With most, the perpetrator doesn’t have a prior record, so it’s not like they’re going to spend the next six months in jail. They get probation or suspended sentences. Most are good people in tough times who make bad decisions.” Not to mention that proving insurance fraud is lengthy, difficult and frustrating.

Sam Constance does not lie in the woods wearing camouflage. A former cop, the Industrial Commission’s chief fraud investigator was trained by the FBI to detect white-collar crime. He is coolly objective, a patient man. He has to be. He figures even a wheelchair-bound workplace-injury victim who goes dancing deserves a fair hearing. The worker — Constance declines to be more precise about identifying the person — claimed total disability and, over several years, insisted the condition was worsening. Thousands of dollars were required to make the worker’s — make that, ex-worker’s — home handicapped-accessible.

Acting on tips — neighbors and co-workers riled by abuse of the system often blow the whistle — that this person had, among other things, been seen dancing, the Industrial Commission referred the case to Constance and his team. They got search warrants and court orders and, over a period of months, “found multiple bank accounts in the victim’s name, tracked cash flow and identified locations such as eating and shopping places frequented.” They identified 60 witnesses, many who had never seen the person in a wheelchair. “If you’re wheelchair-bound and can’t leave home, how can you visit this restaurant twice a week? We have your signed receipts.” He got surveillance tapes from banks and stores showing the victim walking normally. Searching the house, he discovered the paid-for modifications had not been made. The local DA filed fraud charges. The subject pleaded guilty and agreed to repay several hundred thousand dollars.

Not all investigations are as complex. But most involve a team that consists of informants, insurers, private investigators, state agencies and local prosecutors willing to launch criminal trials. In workers’ comp — the Industrial Commission has only four positions for criminal investigators to cover a workforce of more than 4 million — the typical sequence begins when an insurer hires a private investigator, then presents his surveillance findings to the commission. The commission can then grant or deny the injury claim or refer it to Constance’s staff for possible criminal investigation.

There are signs that times are getting tougher for insurance swindlers in North Carolina. Goodwin, a former state legislator and assistant insurance commissioner, was elected to the department’s top job in 2008 on a platform of fighting fraud. “Insurance fraud, like other financial crimes, ends up costing us all through higher premiums,” he says. In 2007, the legislature authorized the Industrial Commission to employ sworn law officers such as Constance to bust fraud, and the commission, which processed 63,000 claims in 2008, has increased staffing. Insurers say they’re getting tougher, too.

For example, Scott Insurance has about 30 claims agents in Greensboro, many serving workers’ comp clients. “When they feel a person is malingering,” Grieves says, “we’ll order a surveillance or try every other means possible to get them back to work.” Acting as a broker, “if we think we might have an embezzlement issue, we’d report that claim to the insurance company that day. Now, most companies have their forensic accounting and investigative teams.”

Fraud won’t disappear, even after the economy recovers. Grieves suspects 90% of insurance fraud is not detected, and while big cases capture headlines, smaller claims eat at corporate bankrolls. “People often talk about the CFO who makes off with $100,000 from his company, but that same company has probably had $250,000 taken in workers’ comp fraud. It’s the quiet, seeping-out-the-backdoor fraud that, unless you spotlight it, will be going on more and more.”

Elsewhere in this issue you’ll find an article I wrote about Ken Lewis, the beleaguered (and now former) chief executive officer of Bank of America Corp. In the course of researching that piece, I realized that while there is near unanimity about the need for reform of securities regulation — after all, no one is so foolish as to make the case that things were fine just as they were — there is much debate over the shape, and severity, of the overhaul. In one regard, managing the securities business ought to be a straightforward proposition, something akin to supervising a swimming competition: Your primary job is to make sure everyone stays in their lanes, no one leaps in before the starting gun sounds, the timing device is operating properly, etc. Beyond that, you simply get out of the way and let the swimmers swim. But the reality is that the financial marketplace is like a swim meet in which the competitors assume everything and anything is OK until you tell them it’s not. They’re buying and selling lane-swap agreements with one another while you’re flipping through the rule book before the race in the faint hope of finding some prohibition against it.

That’s why all the discussions about reform tend to focus on such nut-and-bolt issues as reporting requirements, compensation limits and supervision of exotic investment instruments. The one thing not being debated is the moral underpinning of financial regulation — or more specifically, the utter lack of moral authority among the people who now seek to rein in the excesses of the industry.

I’m talking about Congress, where 535 elected officials operate an unregulated, trillion-dollar market for the trading of influence and favor. The world has never seen anything like it in terms of scale and riches. Congress is where votes are commodities to be bartered; where stockholder money (otherwise known as “taxes”) is used for political reward; where continuance in office is always the first consideration; and where the only independent effort at outside regulation — the ballot box — long ago proved to be no impediment at all to the marketplace of favor swapping and influence trading.

This may sound like raw cynicism, but the sad and simple fact is that Congress wishes to impose standards of conduct upon the financial world that it doesn’t want imposed upon itself. Congress demands fiscal discipline from the private sector at the very moment the national debt is climbing into calculator-shorting numbers and the country can’t meet day-to-day operating costs without borrowing from other nations. It wants apologies from business leaders for their recent excesses even as elected leaders lard various spending bills with pork and earmarks. Congress musters outrage at bankers who turned a blind eye toward the fact that the piper eventually must be paid — that the subprime/credit default/collateralized bill would someday come due — yet without breaking stride insists that a hugely expensive, taxpayer-funded expansion of health care can be accomplished at a savings.

By the way, this isn’t an expression of partisan unhappiness. Republicans and Democrats are equally adept at bending the reality curve to their own ends. And within that fact can be found the engine of despair, because it means that it doesn’t really matter who’s in charge: Each party has done its share of squandering moral capital. There is an undeniable need for regulatory reform. But having Congress be the reformer feels a little like having the mob fix your crime problem. There’s little chance you’ll actually be better off.

The relationship between politicians and business people is simple. Politicians have power and use that power to attract the money they need to stay in office. Business people have money, and they use it to influence those in power. But it’s not a relationship of equals. Just as business leaders have to respond to market forces, they must respond to political forces. No competent CEO would ignore proposed legislation affecting his industry any more than he would ignore an eroding market share. He has to be in the game and have money on the table. Problem is, where business people are unabashed in their desires — they want something, and that’s clear to all — politicians declare (with varying degrees of sincerity) to have only the public good in mind. Except they’re also in the game, and they have the power to direct its outcome.

Needless to say, this is not a situation in which moral authority flourishes. For Congress — which, if polls are to be believed, is held in low regard by an overwhelming majority of Americans — to present itself as the standard-bearer of acceptable business practice is cause for amusement of the sour kind.

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As 2009 came to a close, Gov. Beverly Perdue made sure North Carolinians knew presents were on the way just in time for Christmas. Governors like taking credit for recruiting jobs, and in this economy Perdue wasn’t going to miss a chance to crow a little. There was plenty to caw-caw about.

In the span of a few days, the governor’s office announced that four companies planned major moves to or expansions in North Carolina, plans that promised to create more than 2,000 jobs. Charlotte got the biggest package: New York-based Zenta Mortgage Services LLC said it would expand operations to create 1,002 jobs, while Swedish appliance maker AB Electrolux announced it was consolidating corporate offices from around the country into a North American headquarters that would employ at least 738. Perdue came to the Queen City to make the Electrolux announcement. “This is a big day. … This is a big company,” she said. IEM Inc., a security and emergency management consultant based in Baton Rouge, La., announced it was moving to Durham County and eventually creating 430 jobs. Waltham, Mass.-based lab-equipment manufacturer Thermo Fisher Scientific Inc. pledged to add 104 jobs in Asheville.

Those companies’ decisions don’t seem to be falling in line with the dire forecasts after Perdue and her fellow Democrats in the General Assembly pushed through a $1 billion tax hike last summer to plug a gaping hole in the budget. “The Democratic addiction to more spending and higher taxes is a surefire strategy for more job losses and delayed recovery,” predicted Phil Berger, the Republican leader in the state Senate.

Should such statements be dismissed as partisan rhetoric? Or did the companies that decided to leave such states as Georgia and Louisiana not get that memo? Will they turn into anomalies as we move further into 2010? To some extent, they already are. Each received state incentives. For Electrolux, the state grants and tax breaks eventually could add up to $25 million. Compared with most companies out there, which haven’t benefited from such state largess, their effective tax rates become lower. Maybe the perks more than made up for any disincentive created by rising sales and personal-income taxes.

But other states surely dangled their own bag of goodies in front of Electrolux and IEM, even if the contents may not have been so sweet. For reasons more compelling than any incentives, Electrolux decided to move its headquarters from Augusta, Ga., and IEM chose to leave Baton Rouge. Statements from the CEOs of both companies offered hints as to why. IEM’s Madhu Beriwal mentioned the Raleigh-Durham area’s highly educated workforce. Electrolux Major Appliances North America’s Kevin Scott cited Charlotte as a transportation hub.

Schools and infrastructure cost money, and state legislators’ biggest job is balancing the need to pay for them against the economic harm caused by high taxes. Republicans like Berger say the Democrats who control the levers of political power in North Carolina haven’t done a particularly good job juggling them. One of the biggest state tax hikes ever during the worst economic downturn since the Great Depression has fed those complaints. But obviously, executives at Electrolux, IEM and Zenta didn’t feel that way. Perdue and legislative Democrats can point to those successes to show that they haven’t pushed too far on the tax front.

Rankings from the Washington, D.C.-based Tax Foundation do put North Carolina behind its Southeastern neighbors. Its latest listing ranks the state 39th when it comes to business-friendly tax climates, a calculation that considers five separate taxes. IEM’s current home state, Louisiana, at 35th, is next worst in the Southeast. But peeling back the data, North Carolina’s tax picture doesn’t look so different from that of its neighbors. Georgia and Virginia, for example, have higher combined per capita state and local tax burdens. Most Southeastern states have a combined per capita state and local tax burden of between 8% and 10% of income. North Carolina also is one of just 13 states nationwide that levies no state tax on property. Local property taxes collected in 2006, the last year for which data is available, put the state 13th-lowest nationally.

Obviously, you can take from these statistics what you wish. Economists generally agree that tax rates, tax policies and even basic governance can put states at competitive disadvantages. But inadequate roads and lousy universities can do the same. What’s not so clear — and what the political posturing in Raleigh will continue to be about — is where North Carolina is on the continuum.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.

For all its commitment to facts and truthfulness, the writing of history always proves to be more art than science. Whatever version of past events you read today may be superseded by, and dramatically differ from, another version tomorrow. There’s an obvious reason for that, of course. Every dawn brings the possibility of new information that changes our understanding of the past. When British cavalry made a death-defying charge into Russian guns during the Crimean War — an event immortalized in ”The Charge of the Light Brigade” — the troopers were hailed for their courage and daring. Only later did it become clear that the charge was inadvertent, the result of a botched battlefield communication. What was first seen as a brave act was subsequently viewed as a stupid mistake.

And thus we come to Ken Lewis, former chief executive officer of Bank of America Corp. and a man whose reputation we’ll put through a similar revision here. There’s a twist, though. Unlike the case of the Light Brigade, the first drafts of history have gotten Lewis wrong in the other direction: His actions during the Great Recession, initially judged to be bad, will surely be seen someday much more favorably. In fact, we’ll skip ahead to someday right now and offer this bold bit of revisionist history sooner rather than later: Not only is Lewis not a symbol of all that’s wrong about capitalism, he’s the man who saved it in one stroke. That’s why, during a period in which he was stripped of his title of chairman of the board, piled upon relentlessly by shareholders, regulators and politicians and which he ended by, in effect, quitting his job, he is Business North Carolina’s Mover and Shaker of the Year.

It should be said right away that Lewis is no Lord Cardigan, who led the Lights on their charge. The flash and dash of a cavalry leader was never his style at BofA. That was left to Lewis’ predecessor, Hugh McColl, the South Carolina-born ex-Marine whose assault on the banking establishment had a Light Brigade feel to it (but with a much more successful result). McColl spent most of the 1990s acquiring other banks at a clip of almost one a year, expanding BofA’s geographic reach and deposit base so dramatically that the company came close to bumping against a federal regulation limiting any single bank’s slice of the national deposit pie to 10%. When Lewis took over from McColl in 2001, industry observers expected a caretaker. Surprisingly, BofA found itself in the hands of someone whose style may have been much different from McColl’s but whose results were not. In 2003, Lewis engineered the $48 billion acquisition of FleetBoston Financial Corp. and in 2005 the $35 billion purchase of credit-card issuer MBNA Corp. By mid-2008, after acquiring mortgage originator Countrywide Financial Corp. in a $2.5 billion deal, the only thing missing from Lewis’ trophy collection was the same thing missing from McColl’s: a brand-name investment bank with global reach.

Enter Merrill Lynch Inc. In September 2008, the Wall Street icon was on the brink of becoming the third major investment bank to disappear that year. Bear Stearns, days away from collapse, had been absorbed into JP Morgan Chase in March. Six months later, after Lehman Brothers had been refused a federal bailout, it filed for bankruptcy and saw its remains later scooped up by the British bank Barclays. Morgan Stanley and Goldman Sachs, the last firms standing, themselves were rocked by the rapidly shrinking economy. Even as Lehman Brothers was preparing its bankruptcy paperwork, Lewis — over the course of a single, frenetic weekend — engineered BofA’s purchase of Merrill Lynch, putting the resources of the country’s largest bank behind the ailing investment firm. The deal came at virtually the same moment the country’s money market was close to a meltdown (a critically important fact, on which we’ll say more in a moment).

Huge mistake, right? Most of the world thought so. The conventional wisdom was that BofA had paid too much for a failing company (especially when it might have been picked up for pennies on the dollar out of bankruptcy, a la Lehman Brothers) and that no rational entity commits to a $45 billion deal after only two days or so of duly diligent examination of Merrill’s books. The market voted against BofA, sending its share price dramatically downward, and a second investment of federal Troubled Asset Relief Program money — larger than the first — was needed to shore up the bank’s capital position. But one year later, things look very different. BofA’s stock price has recovered some ground, Merrill’s operations have given the bank’s bottom line a huge boost, and all the TARP money (which totaled, not coincidentally, the original price for Merrill) has been paid back. More to the point, the deal is often described these days in the same close-call terms people might speak of an asteroid that had brushed by Earth. ”If Merrill Lynch had come apart, it would have destabilized capitalism,” says Tony Plath, associate professor of finance at UNC Charlotte. “It would have been a much more difficult repair job [on the economy].”

Warren Buffett, the éminence grise of investing, made the same point about Lewis and BofA four months ago at a conference sponsored by Fortune magazine — albeit in terms that qualified as damning with faint praise. Calling Lewis an “ironic hero” who “inadvertently saved” the economy, Buffett credited him for playing a key role in avoiding a collapse. “If you think Lehman Brothers was bad, imagine Lehman compounded by Merrill Lynch,” Buffett told conference attendees. “I don’t know what [the authorities] would have done.”

It’s worth recalling just how bad the situation was in September 2008. Stock indexes were in free fall, Treasury officials were haranguing financial CEOs several times a day (read Andrew Ross Sorkin’s book Too Big to Fail for details), Republican presidential candidate John McCain suspended his campaign to help (ineffectually) with the mess, retirement portfolios were being vaporized, the credit system was locked up, and, most ominous, the money market was flirting with “breaking the buck” — which is to say, money-market funds, considered the safest, most stable investments, were close to having their share prices fall below $1. That’s akin to having some of the money under your mattress mysteriously disappear or having it vanish from your safe-deposit box. It’s just not supposed to happen. In fact, shares of one fund — Reserve Primary Fund — dipped to 97 cents, forcing it to suspend redemptions as investors scrambled to pull their money out. It was only the second time in history that a money-market fund had broken the buck.

Money-market funds are critical to the economy because they are buyers of short-term debt: government securities, certificates of deposit, commercial paper, repurchase agreements, short-term corporate bonds, etc. Companies use this market essentially as a payday lender. It’s the place where quick cash is available to bridge the occasional gap between fixed obligations (meeting payroll, for instance) and an inconsistent revenue stream. Money-market funds are grease to the financial system, helping the machinery purr rather than grind. They perform so vital a function that after Reserve Primary Fund came close to collapse, the U.S. Treasury stepped in to make $50 billion available to guarantee money-market funds against losses — thus helping to stem the tide of withdrawals by nervous investors.

Against that backdrop, imagine what might have happened if in that same week Merrill Lynch had collapsed and taken the investment-banking system down with it. Investment banks, of course, perform a long-term version of the same service provided by money-market funds in the short term. They finance stock offerings, bond issues, mergers and acquisitions, etc. If money markets are the financial system’s daily lubrication, investment banks are its engine, providing the horsepower needed to keep the economy revved up and growing. In December, business writer and commentator Ben Stein described a conversation he had over dinner with Buffett, during which the subject of Lewis and Merrill came up. As Stein wrote: “The man who saved [the system], he said, was Ken Lewis, beleaguered head of Bank of America. By buying Merrill Lynch just as everything at Lehman was falling apart, he put some confidence back into the system and stopped — or helped mightily to stop — a ‘run on the bank,’ which would have laid waste all of Wall Street. If Merrill had failed, said Buffett, it would have been followed swiftly by Morgan and then by Goldman. By overpaying wildly for Merrill, Lewis essentially saved the nation from financial collapse. Without that buy, commercial paper would have simply stopped dead and the banks’ slender capital would have been swamped by debt as that commercial paper could not be rolled over.”

What’s consistent between Buffett’s remarks about Lewis in September and then again in December is the sense that he considers the banker to be something akin to Inspector Clouseau — a clueless bumbler who flounders around but somehow still manages to come up with a solution. What’s different, though, is that Buffett’s sense of bemusement seems to have disappeared in those intervening months. What was said first as a punch line was later uttered as a recollection of a close call — and not a funny one.

Buffett is right about one thing: Whatever role Lewis may have played in preventing the American economy from sliding into the abyss, and taking the rest of the world with it, that role was inadvertent. But when history is written, the difference between intent and result is but a footnote. The only important thing is what happened — or in this case, what didn’t. You, like Buffett, may consider Lewis a bumbler. You may hold wholesale resentment for all bank CEOs and their pay-checks, be justifiably unhappy with BofA’s pact with the government devil that followed the Merrill deal and be appalled by the sight of the crisis makers turned into bailout takers. But give Lewis his due: Thanks to him, you are better off now than you would have been otherwise.

You’ve surely noticed that everything discussed so far relates to a single event in September 2008. It’s the context for what followed in 2009 — the year for which Lewis is our Mover and Shaker. Over the course of that most recent year, shareholders stripped him of his title of chairman of the board. Every branch of the federal government — executive, legislative and judicial — at different times decided to make BofA, and Lewis personally, their whipping boy. The Securities and Exchange Commission, for instance, sued BofA for allegedly misleading investors about the Merrill acquisition — a purchase that was nurtured (and eventually coerced) by officials of the Treasury Department and the Federal Reserve. All three institutions are, of course, overseen by presidential appointees. There’s the executive branch. The judicial branch chimed in when the federal judge hearing the case threw out the proposed $33 million settlement of the SEC charges, harshly criticizing the agency for being “cynical” and BofA for proposing to pay the settlement with bank money (meaning shareholder cash). Thanks to that ruling, the result was that the SEC subsequently announced its intent to pursue the case with a vigor that the judge thought it initially lacked. The agency intends to make every effort this time to ensure that the deal that saved the economy does not go unpunished.

Not to be outdone in matters of cynicism, the legislative branch — in the form of a committee of the House of Representatives — summoned Lewis to Washington in June to explore a, shall we say, novel theory: Far from being at the mercy of regulators (not to mention subject to the full power and majesty of the whole federal government), wasn’t BofA in fact the dominant party able to bend the government to its will? As Rep. Edolphus Towns, a New York Democrat, later put it, ”Based on the facts we have before us, it sure looks like it was Bank of America that was holding the shotgun at this wedding between BofA and Merrill.” (That this line of thinking fit neatly into the greedy-bankers-almost-ruined-us narrative surely was coincidental.) President Barack Obama, seeking to regain the balance of power of opprobrium, addressed bankers directly during an interview with CBS’ 60 Minutes to say “you guys” caused the whole economic mess and “I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street.”

Fact is, Obama and the government explicitly and overtly did seek to help out fat-cat bankers. When Treasury Secretary Timothy Geithner was asked last month by Newsweek magazine whether the government bailout of the economy was ”too friendly to Wall Street,” he answered: ”The idea that the strategy was unfair and has principally benefited a small number of institutions in New York is a mischaracterization of the design and result of the strategy. I thought people would have understood this after the failure of Lehman Brothers.” Some people do understand that — which is why it’s appropriate for the revision of Ken Lewis’ history to start now.

BofA settles for an insider

With the clock running out on 2009 and Ken Lewis’ retirement date rapidly approaching, Bank of America’s board of directors gave the nod to Brian Moynihan. He became chief executive Jan. 1. It came down to a contest between two insiders — Moynihan, who since August had been head of consumer banking, and Greg Curl, chief risk officer — much to the consternation of critics and shareholders who wanted a CEO from outside the bank’s ranks. Both men had played key roles in the controversial acquisition of Merrill Lynch. But the board’s courtship of outsiders — including Bank of New York Mellon Chairman and CEO Bob Kelly, a former Wachovia chief financial officer — never made it to the altar.

Unlike Lewis and his predecessor, Hugh McColl, who spent their entire careers with the Charlotte-based bank, Curl and Moynihan came with two of the deals McColl and Lewis used to build the nation’s biggest bank by assets. Curl, 61, arrived in 1996 in the merger with St. Louis-based Boatmen’s Bancshares, and Moynihan, 50, with FleetBoston Financial, which BofA bought in 2004.

In announcing Moynihan’s selection, the board said headquarters would remain in the Queen City. But its new CEO lives in Boston and, as of mid-January, had not said when — or even if — he plans to move.

Just when the western part of the state had nearly recovered from the recession of 2001, along came the second downturn of the decade. This time, though, the jobs losses weren’t concentrated in manufacturing and are more likely to come back when the economy rebounds, says Todd Cherry, director of the Center for Economic Research & Policy Analysis at Appalachian State University. Meanwhile, he says, the region needs to build on its strengths — tourism, arts and crafts, health care — and nurture opportunities in less traditional fields such as computer and mathematical sciences.

BNC: Economic activity in the region has continued to slip, even though economists say the nation hit bottom last summer.

Cherry: Western North Carolina lags the state and nation in a lot of these economic swings. In the last recession, I think it took us four years to recover our lost jobs. The rest of North Carolina and the country recovered jobs much more quickly.

The region lost more than 40,000 jobs the last two years.

It’s following the national trends. That this is a rural region hits us particularly hard and makes it tougher to recover. Another reason might be tourism. Our occupancy rates didn’t fall as much as some parts of the state, but it’s such a big component of our economy that we feel it a lot more. We had a big hit on retail sales. We’re starting to see some of that come back over this last year, but we’re still down quite a bit from before the recession.

How did the decade’s two recessions differ up here?

I don’t think it’s going to take as long to recover this time. That one in 2001 was more targeted in manufacturing. We didn’t really expect to get those jobs back. This time around, it’s broader-based, and there’s a bit more in the service sectors. I think it’s more likely to come back to what it was before. In the last recession, we lost a little over 3% of the workforce, and this time we’ve lost almost 10% — three times the negative impact on jobs — so I hope it doesn’t take as long as it did before.

Economic activity in the west actually grew during the first part of the recession, not falling off until late ’08. Has the region seen the worst yet?

I think so. It’s hard to say. And especially with the data the way it is now. When you’re at the bottom of the business cycle, the data is kind of mixed. But I think the worst is behind us.

What course do you expect the region’s unemployment rate to take this year?

I would like to be an optimist, but I think it’s going to remain high: above 10%. We’re near the peak, but it will take some time to come off that peak.

Will tourism continue to be key to the regional economy?

It will continue to play a big role, and there’s good and bad with that. It’s seasonal, but it’s a clean business and offers a lot of amenities for the locals like nice restaurants and shopping. So it’s a good thing, but we need to try to use that as a base and diversify our economy.

How can you diversify without hurting tourism and those quality-of-life factors?

You have to have good planning and good infrastructure and look for long-term goals. Set some long-term goals, and develop a plan to get there.

What kind of long-term goals are you talking about?

Workforce development is a big issue up here, and we do a great job with the secondary-school system. Our kids do well. We’re better than average in terms of the end-of-grade tests. Our graduation rates are high. Where we lose our edge is at the college level. Our workforces don’t have the college attainment that the rest of the state and the nation have. We have had some good growth in computer and mathematical sciences. Health care is big up here. So we have strengths to build on, but I think workforce development is something that we have to pay attention to.

Anything else?

The arts industry up here is big. There are a good number of schools that serve the region. Even people from outside the region come to some of those schools. So that “creative class” environment is something that is already here. It’s big in Asheville, and it’s big in the north. Even West Jefferson has an art area in its small downtown.

How would you describe the region’s housing market?

It’s spotty. In Asheville, they recently reported a huge jump in sales, and that was kind of surprising. But I think that was more of an outlier. In the high country in the same period, it was down 11%. So you see some differences within the region, but if you combine all the reports, you’re seeing it improving. I know that in Blowing Rock, which is a huge second-home area, it’s been picking up lately. When you start seeing second-home purchases pick up, people are feeling a little bit more confident about the real-estate market in general.

Isn’t some of that dependent on recovery in Florida and elsewhere?

Right. A lot of the second homes here are owned by people in Florida. That market was hit pretty hard during this recession, so seeing some activity in that second-home market is a good sign for the overall health of the region.

When do you expect the local construction market to improve?

Middle to late 2010, we’ll start seeing it getting back to normal. So it’s going to lag the rest of the recovery.

How would restrictions on building on steep slopes affect development?

That gets back to your question about how do you grow without undermining your base industry, which is tourism. The steep slopes attract people here, but buildable land is very scarce in some parts. To grow, you almost have to go up sides of hills. So there are trade-offs facing those people making those decisions. How the rules are written and implemented can help or hurt development in the future. If they’re too restrictive, of course, they could make land prices more expensive, and that prohibits some development. But you have to protect the viewsheds and the things that make this place special.

What’s the outlook for manufacturing? Can it coexist with tourism?

I’m less optimistic about manufacturing than most. It’s a tough place to have manufacturing. It’s not very accessible, and until we have better rail service or something that might make transportation a little bit easier, it will be tough to develop manufacturing or bring that back like it was in the past. That’s not to say it can’t be done. There might be some special clusters that would benefit from locating in this region. And if you’re next to an interstate, that’s a different story. But for the most part, this region is rural and pretty isolated.

What else might outlying counties do to catch up?

It’s a case-by-case development. Amenity-led development is something that the region’s done well with. Of course, you have the Cherokee casino, and that’s affecting Jackson and Swain counties really well. And they just started selling alcohol on the casino floor. You have to make decisions that build some of the assets that are in place. There is no one magic bullet that’s going to work at every place, but everywhere has something that they’re good at and that they can develop.

Employment in the region is down more than 28,000 since 2000. Has it really done that well with amenity-led development?

Well, that industry has done well. But obviously, there have been some big shifts in the overall economy. We have to figure out how to fill in the gaps with some other industries and some other strengths. And that’s going to take some time. The 2001 recession hit us really hard, and a lot of the area never recovered. Just a couple of years before this recession, we were just getting back to where we were in 2000. So it’s been a tough, tough decade.

Has the Google data center in Lenoir moved the meter much in the region?

No. It’s nice that they are there. It was a big investment, and it did provide a boost temporarily in construction and other activity. But I don’t think it’s going to have a significant impact over time.

Do you think an inland port is a viable economic project for the west?

No. I would think there are better alternatives. With the region’s topography, it seems like that would be a huge undertaking.

What part will the green economy play?

There’s a lot of talk about that. There’s talk of developing our wind resources and using some of our manufacturing capacity to move toward advanced materials that would be used for wind turbines or solar panels. There are some resources here. Appalachian has strong programs in green energy. Biofuel is an area that’s being pushed and has a lot of potential for the region.

What about the role of higher education?

During this slowdown, we’re seeing what we see during most slowdowns: people returning to school and staying in school longer. A lot of college graduates aren’t getting jobs, so they go to graduate school. That’s one area where the state is lagging — the region, too, in terms of professional and graduate degrees. So that could be one of the positive things that comes out of this slowdown. When the economy comes back, we will have a better workforce to support it.

Is there an economic sector that has bigger impact up here than most people suspect?

Maybe the arts-and-crafts industry. People would be surprised at the strength and breadth of that here and how important it is to the region. Something like two-thirds of our visitors are from outside the state. So you’re talking about people coming in and providing external injections into our regional economy. And, of course, they come to the places like the Penland School of Crafts. And a lot of the community colleges have associated craft centers and craft programs.

Which sectors will grow — and which will contract — this year?

Manufacturing is showing signs of stabilizing. I’m not sure I would call it a growth sector. Then again, when you’ve lost so much, there is a point where there’s not much more damage that can be done. Health care is going to be a strong sector, and the technical sectors like computer and math sciences are going to be strong. Tourism is going to come back, and that’s going to be one of our big drivers.

What about high-tech?

A big part of that is Asheville and the National Oceanic and Atmospheric Administration. There’s a new center they just opened up, collaborating with the UNC system. They’re bringing in a lot of highly skilled technical jobs that should have a good impact on Asheville and the surrounding area. That’s one of those things we need to start building on.