The whole world is crashing. That's essentially the message of the Washington Post'slead story that takes a look at how markets plunged around the world yesterday amid signs that are making it seem increasingly clear that no one is going to survive the economic crisis unscathed. The economies in Japan, Britain, and Germany are all falling at a rate not seen in decades. And emerging economies "are contracting at a pace few had predicted just months ago." The Dow Jones industrial average plunged nearly 300 points and closed just a fraction of a point above its November low.
The Los Angeles Times and New York Times lead with, while the Wall Street Journal banners, General Motors and Chrylser reporting that they need an additional $21.6 billion in government loans to avoid collapsing. In the restructuring plans that they submitted to the Treasury Department yesterday, the auto giants outlined a series of steps to reduce costs, including cutting 50,000 jobs worldwide, closing plants, and dropping brands. USA Today leads with news that some airline passengers will be screened by body scanning machines starting today. The experimental program begins in one airport, and several others will join in the next two months. The scanners essentially look through a passenger's clothing to find things that might be hidden and wouldn't be picked up by a metal detector, such as plastic explosives.
Obama signed the stimulus package yesterday, but that did little to calm investors who were confronted with a spate of grim economic data from countries that many had predicted would help the world climb out of the recession. Even the dire predictions from a few months ago are starting to look optimistic. "Manufacturing, construction, financial services, non-financial, retail—wherever you look, you see a complete collapse in demand," one economist tells the Post. "It really is like the floor has come out of confidence in global economic demand."
The WSJ takes a front-page look at how European markets were particularly affected by increased fears of a "full-blown economic crash in Eastern Europe." Shares of Western banks that do business in the area were particularly affected as some are beginning to warn that Eastern Europe could soon see a collapse on the same scale as the Asian crisis of the late 1990s. Until recently, Eastern Europe was experiencing huge growth and was seen as a mecca for investors, but "the region's fortunes have abruptly reversed," declares the WSJ. One group says it expects a mere $30 billion to flow into emerging European economies in 2009, a huge decline from the $254 billion in 2008.
Considering that GM and Chrysler have already received $17.4 billion in government loans, yesterday's requests would increase the total cost of bailing out the automakers to a whopping $39 billion. And, of course, there are no guarantees that either company won't come back for billions more in the future. The NYT notes that the Obama administration now has "two options, neither of them appealing." It can either continue to prop up the companies or simply deny their request, which would likely force two of Detroit's Big Three to file for bankruptcy protection, and company officials made sure to emphasize that, in the long run, that would be far more costly for taxpayers.
Specifically, GM said it would cut 47,000 jobs worldwide this year and close five North American plants in addition to the closures it had already announced. The company will also begin to focus on just four of its brands: Chevrolet, Cadillac, GMC, and Buick. GM says that if it receives government help it could return to profitability within 24 months but probably would run out of money by March without more taxpayer cash. Chrysler, which increased its total request to $9 billion, said it would cut 3,000 more jobs this year and stop producing the PT Cruiser, Dodge Durango, and Chrysler Aspen models.
The LAT says that, overall, industry analysts "were skeptical" that the plans presented would be enough to save the automakers, particularly considering the current conditions in the market. The WP notes some lawmakers are "expressing skepticism" about providing more money to the automakers. The WSJ suggests that while the GM plan was widely seen as a step in the right direction, Chrysler's left a lot to be desired. Chrysler's plan to cut production capacity by 100,000 vehicles amounts to "a modest reduction for a company that has several more plants than it needs," notes the Journal. There is mounting opposition on Capitol Hill to sinking more taxpayer cash into Chrysler until Cerberus Capital Management, its majority owner, invests some more of its own money into the automaker.
In its inside pages, the NYT takes a look at GM's brand-cutting, a painful move for a company that often prided itself in having "a car for every purse and purpose." GM now says it will focus on four brands, but some experts contend even that is two too many. "A volume brand and a premium brand can get the job done. Toyota has proven that," said the editor of Edmunds.com. "Cadillac, Chevy, done." In another inside piece, the NYT notes that by not naming a "car czar" Obama has put himself in that position. If the Obama administration decides it wants to bail out the automakers, it means that the administration officials, and ultimately the president, will have to be involved in detailed discussions into issues such as work forces, brands, and health care, all while "the auto industry—like the financial industry—will essentially be run from inside the Treasury."
All the papers front, and the WSJ leads its world-wide newsbox with, Obama's first major deployment of combat troops. The president authorized an additional 17,000 soldiers and Marines for Afghanistan. The move will increase the number of U.S. troops in Afghanistan by nearly 50 percent. By midsummer there should be around 55,000 U.S. troops in Afghanistan working alongside 32,000 NATO troops. There have been hints that Obama will send even more troops to Afghanistan, but that won't happen until a full strategy review is completed in about six weeks.
Another day brings yet another explanation from Illinois Sen. Roland Burris about his contacts with former Gov. Rod Blagojevich before he was appointed to Obama's old Senate seat. Burris now says that he did, in fact, try to raise some money for Blagojevich at the same time as he was seeking the appointment to the Senate but was unsuccessful. For those keeping track at home, the WP notes that this was "Burris's fifth version" of events. The Senate Ethics Committee and an Illinois prosecutor have launched investigations. The WP's editorial page says this whole thing is getting tiring. "Burris's story has more twists than the Chicago El," says the Post. "The people of Illinois have suffered enough. Mr. Burris should resign."
In yet another disturbing story about the special immigration-enforcement units that were set up after Sept. 11 to catch dangerous illegal immigrants, the Post takes a look at a raid that took place in January 2007 that detained 24 Latino men. After being admonished for failing to meet their quota for arrests, a team descended on a 7-Eleven in Maryland and just started detaining people, many of whom were in the country illegally but most were not fugitives. One, in fact, had just stopped by to get coffee on the way to the hospital to visit his wife and child.
The WSJ takes an interesting look at the confusion surrounding the executive-pay restrictions that were inserted into the economic stimulus package and could end up affecting more people than previously believed. The law essentially restricts the compensation of the 25 highest-paid people in a company that receives bailout money. But if the company identifies the 25 people it intends to pay the most this year and restricts their pay, they would no longer be the highest paid people and 25 new people would fall into that category. So does that mean their pay would have to be restricted as well? Alternatively, if it's done based on compensation received in 2008, those whose pay is restricted wouldn't be the highest paid in 2009. It could all result in a "weird game of leapfrog," as an executive-compensation attorney puts it.
The NYT and WSJ front news that the Securities and Exchange Commission charged R. Allen Stanford with a "massive ongoing fraud" involving $8 billion in certificates of deposit. According to the SEC, Stanford International Bank, which is based in Antigua, and other companies that Stanford controlled lured investors into buying the CDs by promising "improbable, if not impossible" returns that were far higher than other banks. Although he claimed there was lots of oversight, it turns out that the investments were reviewed by only two people. The NYT notes that regulators are "likely to face tough questions" because Stanford's activities have been raising red flags since 1998. Interestingly enough, the charges are the result of an inquiry opened in October 2006 that the SEC apparently paused until late last year "at the request of another federal agency," reports the NYT.
The NYT reports that for around $100 frustrated investors can take a hammer to Bernard Madoff. One company has released a 7-inch Smash-Me Bernie doll that shows a smiling Madoff in a red devil suit with a pitchfork. The doll comes with a gold "commemorative" hammer. The company has received 1,000 orders for the Madoff doll and just got an order for 50 dolls that look like John Thain, the former Merrill Lynch executive. Will a Stanford doll be next?